Skip to main content

Full text of "Honest money"

See other formats











All rights reserved 


Norfaiooti ^rfgs : 

J. S. Gushing & Co. Berwick & Smith. 
Norwood, Mass., U.S.A. 


IN an article in the " American Journal of 
Politics" for July, 1893., I gave a brief state- 
ment of the conclusions I had reached in an 
attempt to analyze the requirements of a 
perfect money. 

The limits of a magazine article prevented 
a full discussion of the subject ; many points 
were left untouched, and all quotations from 
the works of other writers, in support of the 
brief arguments given, were of necessity 

As the course of events since the article 
referred to was written has more fully con- 
firmed the conclusions stated therein, a desire 
to give the subject ampler treatment, which 
its importance seems to demand, has led to 
the writing of this little work. 


If apology is needed for a further contribu- 
tion to the mass of literature on the subject 
of money, with which the country has of late 
been flooded, it must be found in the above 
explanation of the reasons which have led to 
the production of the present volume, coupled 
with the fact that the questions involved are 
far from being settled, and that the loud 
complaints, and the many financial schemes 
and plans, that have appeared all over the 
country make it probable that further legisla- 
tion on the subject will be attempted in the 
near future. 

It must be conceded that there is some- 
thing radically wrong in a country like the 
United States, rich in all of the necessaries 
and most of the luxuries of life, where nature 
has been most bounteous, and where the not 
excessive population is exceptionally enter- 
prising and industrious, when a large part 
of the people cannot at times find employ- 
ment. When, with an abundance of unoccu- 
pied land, and a great diversity of undeveloped 


resources, capital and labor both anxious 
for profitable employment cannot find it ; 
and when men suffer for the necessaries of 
life, not in one section only, but universally 
and in large numbers, while our warehouses 
are filled with manufactured goods, and our 
barns and granaries are bursting with food 
products. This is a condition that is certainly 
as wrong as it is unnecessary. 

Such a condition occurring once or twice 
in the history of a country might be attrib- 
uted to accident, but recurring, as it does, 
periodically, it argues a fault in our economic 
system. So wide a disturbance, extended also 
to other countries, betokens a general cause. 
What that cause is, it is not difficult to per- 
ceive all indications point to our monetary 
system as the chief source of the trouble. 
There are doubtless other causes that con- 
tribute in some degree to create variations 
in prosperity, but no other single cause, or 
combination of causes, seems to us compe- 
tent to account for the great fluctuations ; 


while the one we have cited alone may easily 
do so. 

This work may have little direct effect 
in bringing about an improvement in our 
money system, but it is the hope of the writer 
that it may have at least an indirect effect 
by helping to spread a better knowledge of 
the requirements of such a system and of the 
principles involved. 

Much of the current discussion of the 
subject of money betrays ignorance of those 
fundamental principles of the science which are 
agreed upon by all economists, if it does not 
wholly disregard them. I have endeavoured 
in this work to avoid such errors by a pains- 
taking analysis of the subject, and by a care- 
ful comparison of the opinions of authorities 
on the principles involved. Starting from this 
foundation I have deduced the requirements 
for an honest money, shown the faults of our 
present system in the light of these require- 
ments, as well as the merits and defects of 
various changes that have been proposed 


for its betterment, and, in conclusion, have 
outlined a system that seems to meet the 
requirements and to correct existing faults. 
I desire to acknowledge my indebtedness, 
not only to the many works mentioned and 
quoted from herein, but to others, neither men- 
tioned nor quoted, which have been of material 
assistance in corroborating the opinions I have 
ventured to advance. 

A. I. F. 






Definition of Value ....... 1 

Supply and Demand ....... 8 

The Standard of Value 12 



Definition of Money 21 

The Functions and Requirements of Money . . 25 

Money Value ........ 29 

Money Demand and Supply 36 

Necessity for Invariable Money Value ... 40 



The Gold Standard 54 

Gresham's Law ........ 57 

The Silver Standard 65 

Bi-metallism 67 

Paper Money 71 





Gold-Standard Prices 81 

Silver-Standard Prices 94 







The Standard of Value 158 

The Medium of Exchange 164 


Merits of Plan 181 

Objections Answered 187 


INDEX 205 




Definition of Value. 

A CLEAR conception of the meaning of the 
term value is the first essential to a discussion 
of the subject of money. 

Under the general term value the' older 
economists recognized two distinct concep- 
tions, which they distinguished as value in 
use and value in exchange. 

To the former they gave little attention, 
merely stating that while it was essential to 
value in exchange, the latter was not propor- 
tional to nor determined by the former, and 
citing air and water as familiar examples of 


objects having great utility, or use value, 
yet having little or no exchange value. 

Modern economists chiefly those of the 
Austrian school have analyzed the subject 
more thoroughly, especially the relation be- 
tween the two conceptions, and have shown 
that utility or subjective value, as it is 
generally termed by them, is an expression 
both of human desire and of the quantity of 
the necessary commodity available to satisfy 
such desire. 

The utility of a thing grows less as the 
quantity of it increases, and it is the utility 
of the last increment of supply, or the mar- 
ginal utility, that determines the subjective 
value of the whole supply, and it is the 
ratios between these subjective values that 
determine exchange values. Air and water, 
for instance, have no great utility, as viewed 
by the older economists, except where the 
supply is limited ; ordinarily, their abundance 
makes their utility, or use value, small. 

It is not essential to the purpose of this 


work to enter into an abstract discussion of 
the theory of value further than is necessary 
to make clear the fact that the present analy- 
sis in no way lessens or invalidates the dis- 
tinction between the two conceptions of value 
noted by the earlier economists, a fact 
which has been overlooked by some who 
have accepted the marginal utility theory. 
The distinction remains, broad and clear. 
The one conception, whether called "value 
in use," "marginal utility," or "subjective 
value/' pertains wholly to the relation which 
a single good, or unit group of goods, bears 
to a single individual, or society unit, in 
respect to human well-being, and has no 
reference or relation to any other individual 
or other good. 

The other conception, called "objective 
value," or " exchange value," is dual in its 
nature, involving in all cases two or more 
commodities. Abstractly, it is the ratio at 
which commodities may be exchanged for each 
other, or, since such ratio for a unit of one 


commodity is expressed by the amount of 
another given for it, the exchange value of 
a thing is the quantity of some other thing 
that will be evenly exchanged for it, or, con- 
sidered in a general sense, the amount of 
commodities in general it will exchange for, 
its general purchasing power, in short. 

This latter conception exchange value 
is the one that principally concerns us in 
discussing the subject of money. It is also 
the conception generally in mind when the 
simple term value is used either by econo- 
mists or by the general public, and where- 
ever the term is used in this work without 
qualification it is to be understood in that 

The Austrian economist, E. von Bohm- 
Bawerk, says, in his " Positive Theory of 
Capital," p. 130:- 

" Value in the subjective sense is the impor- 
tance which a good, or a complex of goods, 
possesses with regard to the well-being of a 


" Besides the expression ' value in exchange/ 
English economists use, quite indifferently, 
the expression ' purchasing power,' and we 
Germans are beginning in the same way to 
put in general use the term Tauschkraft." 

The value of a thing may be considered 
either in a particular sense, with reference to 
some other specified thing, or it may be con- 
sidered in a general sense, with reference to 
all other things considered as a whole. We 
may say the value of a bushel of wheat is 
two bushels of corn, meaning that these two 
commodities exchange for each other in that 
ratio ; or we may speak of the value of wheat 
having risen or fallen, meaning that its gen- 
eral purchasing power, or the ratio between 
that and all other things taken as a unit or 
a whole, has increased or decreased. 

The term must invariably be used or con- 
sidered in a general sense, unless otherwise 
specifically stated, for we must always have 
some other thing in mind besides the one 
whose value we are considering ; while if no 


other is stated, commodities in general (taken 
as a whole) is that thing. 

Value being a ratio, it is impossible for all 
values to rise or fall simultaneously. The 
sum of subjective values may increase or de- 
crease, indeed it is one of the great objects 
of human endeavour to increase the sum of 
want-satisfying power, but the sum of the 
ratios between these subjective values is con- 
stant. As one term of any ratio rises rela- 
tive to the other, the second necessarily falls 
as regards the first. 

This principle is so universally recognized 
that quotations might be given from almost 
every work on political economy in support 
of it. The following will be sufficient, how- 
ever, as regards both the definition of value 
and this principle. 

John Stuart Mill says, in his " Principles of 
Political Economy" : 

" Value is a relative term. The value of a 
thing means the quantity of some other thing, 
or of things in general, which it exchanges 


for. The values of all things can never, 
therefore, rise or fall simultaneously. There 
is no such thing as a general rise or a gen- 
eral fall of values. Every rise of value sup- 
poses a fall, and every fall a rise." 

Again, he says : 

" Things which are exchanged for one 
another can no more all fall, or all rise, than 
a dozen runners can each outstrip all the rest, 
or a hundred trees all overtop one another." 

Prof. S. N. Patten says, in "Dynamic Eco- 
nomics," p. 64 : " Objective values, however, 
are never a sum, but only a relation between 
subjective values. There can never be high 
or low objective values of commodities as a 
whole. It is therefore impossible to add to 
or subtract from them." 

This latter quotation, as well as the preced- 
ing one from von Bohm-Bawerk, both expo- 
nents of the marginal utility theory, may 
help to correct a quite prevalent impression 
that this later theory does not distinguish 
between the two conceptions of value, and 


that because the sum of subjective values 
may increase, the sum of objective or ex- 
change values can increase also. 

Supply and Demand. 

All economists recognize the fact that the 
immediate determiner of value is the rela- 
tion between supply and demand. These 
terms in their economic sense mean some- 
thing more than mere desire and mere quan- 
tity. Supply means the amount offered in 
exchange, and demand means not only a 
desire, but a desire coupled with the ability 
and willingness to give other commodities 
in exchange for the one wanted. 

In this sense the terms are strictly correla- 
tive. The supply of a commodity (that is, 
the amount offered) may be considered as 
equivalent to a demand for some other com- 
modity, or for commodities in general. We 
may say, then, that the value of any commod- 
ity is determined by the ratio that the demand 
for that commodity bears to its supply ; or by 


the ratio that the demand for that commod- 
ity bears to the demand for some other com- 
modity, or commodities in general, when 
the term value is used in a general sense 
and not with reference to some other speci- 
fied thing only. (The objection that has 
been made by some writers that a ratio could 
not logically exist between a desire [demand] 
and a quantity [supply], does not apply to 
these terms in their economic sense ; for, as 
above stated, they are something more than 
a mere desire and a mere quantity, and the 
expression is translatable into the other ex- 
pression, " ratio between the demand for one 
commodity and the demand for others in 

The statement of the later economists 
that exchange value depends on, and is de- 
termined by, the ratio between subjective 
values in no way conflicts with the above 
statement that value is determined by the 
ratio between demand and supply, for the 
demand for a commodity is determined by 


its subjective value and by that alone, and 
must vary with it. Hence, as the quantity 
of anything increases and its subjective 
value lessens, the demand for it relative to 
the quantity of other articles also lessens, and 
its value falls, and vice versa. 

This close connection between value and 
the ratio between demand and supply value 
rising as the ratio increases, and falling as 
it grows less is true in all cases. No other 
factor can affect the value of any commod- 
ity except by altering the relation or ratio 
between these two. 

Cost of production is a more remote factor 
that enters into the determination of value 
in most but not in all cases, through its effect 
on supply. It is used, like the term value, 
in two senses, a subjective and an objective 
sense. In the former it means the pain of 
labour and waiting that must be undergone 
to produce the good that is being considered, 
the negative pleasure given to get the 
positive pleasure to be derived from that 


good. In its objective sense the sense in 
which it is generally used cost of produc- 
tion means the goods that must otherwise be 
given for, bartered or set against those desired ; 
in a simple case of direct production, it means 
the goods that might have been produced, in 
lieu of those that have been produced, with 
the same subjective cost ; in more complex 
cases, it means the sum of the goods sacrificed, 
in the shape of raw materials, rent, wages, 
interest, etc., to get the one produced. 

When the value of a commodity falls to 
or below the cost of production, or even when 
it approaches it so closely as to reduce the 
margin between the two the producer's 
profit below that in other industries, then, 
men will cease to produce the one and turn 
their labour and capital to producing the others 
which offer greater profit, thus lowering the 
supply of the abandoned product and raising 
that of the more profitable, thereby affecting 
the value of both. 

The effect of this operation of the law of 


cost is to equalize profits and make the 
values of things conform to their cost or be 
proportional thereto. 

The law can only operate when men are 
free to turn their labour from one industry to 
another. Hence arises the important ex- 
ception to the law, that the values of goods 
produced by a monopoly are not affected by 
their cost of production. Only under free 
competition does the law operate in full 
force. As monopoly becomes a factor cost 
ceases to be, and, when the monopoly is com- 
plete, cost has no weight whatever in the 
determination of value. 

For analogous reasons, cost enters but par- 
tially into the determination of the value of 
such goods as are dependent more or less 
on luck or chance for their production, as in 
the case of precious stones, gold, silver, etc. 

The Standard of Value. 

"We may use the value of anything as a 
measure by which to compare the values of 


any and all other things, but as all the fac- 
tors that determine value are variable, the 
value of everything is variable. Any value 
may rise with reference to some other value, 
and at the same time fall with reference 
to a third. 

By what standard, or invariable measure 
at all times and places, can we compare the 
values of goods to determine their constancy 
or variability? 

We must not forget that there are two 
kinds of value, and that it is a standard of 
exchange value we are seeking. So far as it 
may be possible to formulate a standard of 
subjective value, it must consist of the pain 
or inutility of labour ; for this kind of value 
pertains only to a single good, and cannot 
be referred to other goods without confusing 
it with the other conception. We cannot 
measure the absolute pleasure a good will 
give to an individual except by the pain he 
will undergo to get it. It is not a standard 
for this sort of value we want. It was evi- 


dently some such conception as the above 
confusing, however, not only the two kinds of 
value but the two descriptions of labour that 
led Adam Smith to consider labour as the 
ultimate standard of value. He appears also 
to have confused the idea of a standard of 
value with that of a determiner of value. 

These errors were pointed out in part by 
Ricardo and, in part also, by J. S. Mill and 
later writers ; hence the contention that labour 
is in any way a standard of value has long 
been abandoned by the ablest economists. 
The idea still lingers, however, and is fre- 
quently brought forward in current discus- 
sions, and for this reason it seems necessary 
to analyze briefly the relation of labour to 

Labour is necessary to the production of all 
commodities, but it is not itself a commodity, 
nor anything which for itself is desired. It 
is a force, and, like every force, valuable ac- 
cording to the results it accomplishes. If 
unproductive, it has no value ; if productive, 


its value varies according to the value of the 
commodities or utilities it creates. We use 
the terms " price of labour " or " value of 
labour," implying that it is the labour which 
is valued, and which is bought and sold; but 
the terms are merely a convenience. What 
is really bought and sold is the commodity 
or utility such labour has produced or will 
produce. If it were the labour itself, then 
the purchaser would receive not only the 
labour, but the commodity it produced, in 
exchange for the wages paid, a double 
return, which, of course, is absurd. 

Three descriptions of labour may be dis- 
tinguished in connection with the value of 
a commodity, viz. : 

(1) The labour expended in its production. 

(2) The labour in general it will purchase. 

(3) The labour necessary to produce more 
of it. 

The first kind of labour in no way affects 
the existing supply or demand of the commod- 
ity, and is neither a measure of its value nor a 


regulator or determining factor of such value. 
Evidences are not lacking to prove that a 
commodity will frequently not exchange for as 
much labour as was expended in producing it. 

The second kind of labour, the amount in 
general which a commodity will purchase, 
depends on the amount of commodities such 
labour will produce, less the share which goes 
to capital as its reward ; for, neglecting rent 
or classing it with capital, these two, labour 
and capital, are joint factors in production 
and divide between them the total product. 
It is hardly necessary to observe that labour 
is continually growing more efficient; that 
improved skill and methods enable a much 
larger amount of commodities in general to 
be produced, with a certain amount of labour, 
than could formerly be produced; and that 
labour receives, as its share of such product, 
a much larger amount than formerly. 

It is thus evident, that a commodity which 
would exchange for the same amount of 
labour now as formerly, would exchange for 


a much larger amount of commodities in gen- 
eral now than then, and, if we adhere to our 
definition of exchange value, would be worth 
more than formerly ; while if labour be taken 
as a standard of value, it would be worth the 
same. The use of this form of labour as a 
standard of value is, it will be seen, incom- 
patible with the definition of value. It may 
serve as a measure of the relative values of 
two commodities at any particular time and 
place, just as any third commodity may; 
but, as Ricardo remarks, "is subject to as 
many fluctuations as the commodities com- 
pared with it." 

The same argument applies to the third 
form of labour that necessary to produce 
more of a commodity. This form of labour, 
however, is one of the factors in the cost of 
production, and through its effect on cost is 
one of the more remote factors that determine 
value, as explained in considering cost of 
production, but this does not make it in any 
sense a standard. 


We may conclude, then, that labour in any 
form is not a standard of value ; that, as John 
Stuart Mill observes, it " discards the idea 
of exchange value altogether, substituting a 
totally different idea, mone analogous to value 
in use." 

Since the values of things can never rise 
or fall simultaneously, every rise supposing a 
fall, and every fall a rise, it follows that the 
values of all taken together must be constant ; 
in other words, that general values cannot 
change. Thus it is that we find whether any 
one thing has risen or fallen in value, as 
between one period and another, only by com- 
paring it with all others, in short, by its 
general exchange or purchasing power. If 
this has increased, then its value has risen; 
if it has decreased, its value has fallen. It 
is evidently not necessary that anything 
should exchange for more or less of every 
other thing to show a rise or fall of value, 
but only that it should, on the average, 
exchange for more or less of all; that its 


average purchasing power should be greater 
or less. If it has exchanged at different times 
for the same amounts, on the average, of all 
other things, its value, clearly, has remained 

This is the only standard, or test, which 
can be applied to the exchange value of any 
commodity to determine its constancy or vari- 
ability, and it is inherent in the very defini- 
tion of exchange value. 

The values of commodities may be com- 
pared to the surface of the ocean, which, 
vexed by winds and tides, is never at rest, 
every point continually rising or falling as 
compared with others. As some points rise 
others fall, yet there is a mean level which 
does not vary, and by comparison with which 
the variations of level of any particular point 
may be determined. So with values, there is 
a mean or average which is constant, and by 
referring individual values to that we can 
determine their fluctuations. 

These ideas will become clearer as we pro- 


ceed to apply them concretely to the special 
case of money. 

Although there can be but one real standard 
of value, invariable at all times and places, 
yet, as before stated, any commodity may 
serve as a measure of value, and the great con- 
venience subserved, by all the people of any 
locality or country using the same commodity 
instead of a number of different ones for this 
purpose, early led to the adoption of some one 
commodity in each locality as a " money " to 
measure values and facilitate exchanges. 



Definition of Money. 

MONEY has been variously defined by differ- 
ent writers. Perhaps the definition given by 
Prof. F. A. Walker, though lengthy, is the 
most comprehensive. He says : " Money is 
that which passes freely from hand to hand 
throughout the community in final discharge 
of debts and full payment for commodities, 
being accepted equally without reference to 
the character or credit of the person who 
offers it, and without the intention of the per- 
son who receives it to consume it, or enjoy it, 
or to apply it to any other use than in turn 
to tender it to others in discharge of debts 

or full payment for commodities." 



This definition has been indorsed by several 
other writers; by some, however, the term 
money is restricted to coin, paper money 
being called currency. The distinction is per- 
fectly proper, though not generally concurred 
in. People commonly use the terms money 
and currency indiscriminately for both coin 
and paper money, since they perform identi- 
cally the same work where both are used 
together, and the paper is convertible into 
coin at any time. Where the paper is used 
alone " inconvertible paper ' ' coin is really 
not money ; it ceases to circulate as money ; 
it is hoarded as treasure, or bought and sold 
as a commodity, but fails to have that general 
use in current transactions in that country 
which alone entitles any commodity to be 
called money. 

The distinction sought to be made between 
paper money and coin arises largely, it is 
thought, from the idea that coin has a value 
in itself which paper money has not. This 
idea is erroneous. Value, as we have seen, is 

MONEY. 23 

a ratio or relation, and though the value of 
anything is based on a desire for it, that de- 
sire may arise either from the satisfaction 
which the use or consumption of it will bring, 
or from the belief that it can be exchanged for 
some other thing that will give satisfaction in 
use or consumption. The value of money is 
due to the latter of these two causes. No 
one wants money except for the purpose of 
exchanging it for other commodities ; under 
modern conditions it is necessary for* this 
purpose, it is the indispensable requisite to 
the satisfaction of certain human wants. 
Money, therefore, possesses an indirect if not 
a direct subjective value which forms the 
basis of its exchange value. Paper money 
possesses the power of satisfying this need 
for money to the same extent that coin does, 
under like conditions, and it has, therefore, 
both subjective value and exchange value, 
and the latter is governed by the same law 
of supply and demand that operates in all 


The fact that the material of which the 
money is made is, in one instance, of great cost, 
and, in the other, of little or no cost, is of 
minor consequence. The minting of gold and 
silver into coin may, or may not, add to its 
value ; it really transforms it into another 
commodity money and its value is thence- 
forth determined by the law of supply and 
demand as applied to money. The same is 
true of paper money, the low cost in the pro- 
duction of which is not an element in deter- 
mining its value, for its production is always 
a monopoly. There is no reason, then, for 
not considering paper currency as money, and 
in using the term we w r ill consider its mean- 
ing to be that given by Professor Walker, - 
which is also its popular significance, and 
as including both paper money and coin. 

It should be considered, whether of one ma- 
terial or of several circulating concurrently, 
as a single commodity created for the purpose 
it fulfils, and as separate and distinct from the 
material of which it is made. In short, as 

MONEY. 25 

that commodity to which, by common consent 
and usage, generally sanctioned by law, all 
other commodities are referred as a measure 
of value, and by means of which exchanges 
are effected. 

TJie Functions and Requirements of Money. 

Professor Jevons, in his valuable work, 
" Money and the Mechanism of Exchange," 
gives to money the following threefold func- 
tions, viz. as : 

A medium of exchange. 

A measure of value. 

A standard of deferred payments. 

He also inquires if it does not perform a 
fourth function as a ' store of value.' 

All authorities give the first two of the 
above as the principal money functions. 
Some include one or both of the others, and 
some omit both. 

Prof. F. A. Walker objects to the use of the 
term " measure of value," on the ground that 
value, being a relation, cannot be measured 


but can only be expressed. He proposes, 
instead, the term, "common denominator of 
value." It is not quite clear why a relation 
or ratio cannot be measured, the measure, 
of course, being a similar ratio, nor does 
there seem to be anything gained by the 
change, while the term proposed seems less 
clear and correct than the one in general use. 
Money, or the value of the unit of money, 
is used as a measure in comparing the values 
of other things just as a yardstick, or the 
length of a yard, is used in comparing the 
lengths of other objects. 

Money, in acting as a medium of exchange, 
must also act as a store of value to some 
extent, since it stores the value received 
until it is expended ; but the use of money 
for the purpose of hoarding is not to be re- 
garded as strictly one of its functions, at 
least not in the sense of requiring to be es- 
pecially provided for. The fact that it is so 
used, however, should be borne in mind, as 
it interferes more or less with its other and 

MONEY. 27 

more important functions ; but in considering 
the qualities necessary to the best perform- 
ance of the functions of money we may omit 
this last function, as any money which fills 
the requirements for the others will fulfil 
those necessary to this in a sufficient degree 
considering its minor importance. As our 
inquiries in this work will be confined to the 
money materials now in general use, viz., 
gold, silver, and paper, we need not consider 
the qualities necessary to a money material, 
as given by Professor Jevons, such as por- 
tability, indestructibility, divisibility, etc., 
further than to say that the qualities he men- 
tions are possessed by all of the money ma- 
terials now in use, in a sufficient and nearly 
equal degree. Coin, to be sure, is more in- 
destructible than paper ; but as the paper is 
sufficiently acceptable for the purpose, the 
difference need not concern us. 

Aside from that general acceptability, 
which is the very essence of money, with- 
out which no commodity could be considered 


money, and which, therefore, all money may 
be considered as having, the great require- 
ments of money are invariable value, added to 
convenience of form, size, lueight, and value. 

This latter requirement pertains to the 
function of a medium of exchange, and the 
degree in which it is possessed by the differ- 
ent money materials or kinds of money, de- 
pends wholly on the values to be transferred 
by its use. For small amounts, silver is pref- 
erable to either gold or paper ; as the amount 
increases, gold becomes preferable to silver; 
and for all amounts above fractional cur- 
rency, paper money is unquestionably more 
convenient in every way than either gold or 
silver, and the advantage increases with the 

Invariable value is the great requirement for 
both the functions, "a measure of value " 
and " a standard of deferred payments." In- 
deed these two functions may practically be 
considered one ; the only difference between 
them being centred in the element of time, 

MONEY. 29 

and that is more or less involved in every 
exchange requiring the use of money, since 
some interval must elapse between the sale 
of one commodity and the purchase of another 
with the money received, which consti- 
tutes the whole exchange transaction, and 
during such interval the money should main- 
tain a constant value. When the interval over 
which the transaction is spread is a large 
one, as in the case of notes and bonds, any 
variability is more noticeable than when the 
change is distributed among many holders of 

Before considering further the great neces- 
sity for invariable money value, it will be 
best to consider the laws and forces which 
determine and control the value of money. 

Money Value. 

That money is a commodity, and that its 
value varies like that of every commodity 
in accordance with the law of supply and 
demand, are incontestable. 


The fluctuations in the value of money can 
be detected, it is clear, in the same way that 
changes in the value of any commodity can 
be detected, by comparison with all other 
commodities, by its average purchasing 
power, in short. 

The value of a commodity, when measured 
by money and expressed in terms of the unit 
of money, is called its price. If the prices of 
all commodities, or the average of all, rise or 
fall, it is conclusive evidence that the value 
of money has changed, for its purchasing 
power is less in the one case and greater in 
the other. Indeed the statement that gen- 
eral prices have fallen is equivalent to saying 
that the value of money has increased, and 
vice versa. Therefore, if the value of money 
remains stable, average prices must remain 

The following quotations will show that 
these views are correct, and that they are 
generally accepted by authorities on finance 
and political economy, though very commonly 

MONEY. 31 

overlooked and neglected in discussions on 
the subject. 

John Stuart Mill, in his " Principles of 
Political Economy," says : 

" There is such a thing as a general rise of 
prices. All commodities may rise in their 
money price. But there cannot be a general 
rise of values. It is a contradiction in 
terms." " That the money prices of all 
things should rise or fall, provided all rise or 
fall equally, is in itself, and apart from ex- 
isting contracts, of no consequence. It affects 
nobody's wages, profits, or rent. Every one 
gets more money in the one case and less in 
the other ; but of all that is to be bought 
with money they get neither more nor less 
than before. It makes no other difference 
than that of using more or fewer counters 
to reckon by. The only thing which in this 
case is really altered in value is money ; and 
the only persons who either gain or lose are 
the holders of money, or those who have to 
receive or pay fixed sums of it. ... There 


is a disturbance, in short, of fixed money 
contracts, and this is an evil whether it takes 
place in the debtor's favour or in the cred- 
itor's. . . . Let it therefore be remembered 
(and occasions will often rise for calling it to 
mind) that a general rise or a general fall 
of values is a contradiction; and that a gen- 
eral rise of prices is merely tantamount to an 
alteration in the value of money, and is a 
matter of complete indifference save in so far 
as it affects existing contracts for receiving 
and paying fixed pecuniary amounts." 

" The value of a thing is what it will 
exchange for : the value of money is what 
money will exchange for; the purchasing 
power of money. If prices are low, money 
will buy much of other things, and is of 
high value ; if prices are high, it will buy 
little of other things, and is of low value. 
The value of money is inversely as general 
prices : falling as they rise and rising as they 

"The value of money, other things being 

MONEY. 33 

the same, varies inversely as its quantity; 
every increase of quantity lowering the 
value, and every diminution raising it in a 
ratio exactly equivalent." 

" That an increase of the quantity of 
money raises prices, and a diminution low- 
ers them, is the most elementary proposition 
in the theory of currency." 

The expression, "other things being the 
same," in one of these quotations, evidently 
means "demand remaining the same," and 
the terms increase and decrease of money un- 
questionably refer to the increase and decrease 
relative to demand, since the writer further 
says : 

" If there be at any time an increase in 
the number of money transactions, a thing 
continually liable to happen from differences 
in the activity of speculation, and even in 
the time of year (since certain kinds of busi- 
ness are transacted only at particular sea- 
sons) ; an increase of the currency which is 
only proportional to this increase of transac- 


tions, and is of no longer duration, has no 
tendency to raise prices." 

Per contra, therefore, unless the currency 
be increased to meet such increased demand, 
there will be a tendency to decreased prices 
and consequent change in the value of money. 

Stronger statements than these of Mill's, 
or by an abler authority, could not be asked 

Prof. E. T. Ely, in his " Political Economy," 
remarks, p. 179 : 

" Values are merely relative, and conse- 
quently there can be no such thing as a 
general rise or fall of values." 

" Value expressed in money is called price. 
There can be such a thing as a general fall 
or a general rise of prices. A general fall 
in prices means an increase in the value of 
money, and a general rise of prices means 
a fall in the value of money." 

David Ricardo observes that : - 

" The value of money, then, does not 
wholly depend upon its absolute quantity, 

MONEY. 35 

but on its quantity relatively to the pay- 
ments it has to accomplish." 

The last edition of the " Encyclopaedia 
Britamrica " says, as a conclusion in discussing 
the value of money, and referring evidently 
to coin alone : 

" The most correct way to regard the ques- 
tion of money value is that which looks on 
supply and demand, as interpreted above, as 
the regulator of its value for a limited time, 
while regarding cost of production as a force 
exercising an influence of uncertain amount 
on its fluctuations during long periods." 

This view is in exact accordance with the 
conclusions previously stated in regard to 
the values of all commodities. 

The Encyclopaedia further says : 

"Where the coinage of a State is arti- 
ficially limited, the value of its money 
plainly depends on supply and demand." 

Quotations might be multiplied indefinitely 
to the same effect ; but enough have been 
given to show the general consensus of opinion. 


Indeed it may seem that there is no neces- 
sity for accumulating evidence in support of 
propositions so apparent as those stated; 
unfortunately, however, not a few recent 
writers have ignored some of them, and the 
general public seem to make the same mis- 
take ; hence, it is of the utmost importance 
that they be kept clearly in mind. 

Money Demand and Supply. 

Mill affirms that : " The supply of money 
is all the money in circulation at the time." 

Money that is hoarded has no more effect 
on prices than if it did not exist. Money 
lying in banks or in the hands of merchants 
or others to the extent necessary for the safe 
conduct of their business may be considered 
money in circulation, but beyond the amount 
needed for conducting any business the excess 
may be considered as hoarded. The supply 
of money in any country depends directly and 
primarily on the legislation of that country; 
and secondarily, in most, but not in all cases, 

MONEY. 37 

on the legislation of other countries, and the 
production of precious metals available for 
coinage, etc., all of which can be better ana- 
lyzed in explaining the different systems. 

The demand for money is most complicated, 
since it is affected by a great variety of forces. 
It varies directly with the activity of com- 
merce, and universally with the activity of 
money, a less amount of money doing a 
greater work when active than when sluggish. 
It is affected by changes in the customs and 
habits of the people, by changes in transpor- 
tation facilities, in diversity of employment, 
in concentration of population, and, more 
than all other, it is affected by the extent 
of credit, the use of banking facilities, etc. 

Credit in its various forms takes the place 
of money, and does its work in this respect 
to an enormous and continually increasing 
extent. Through the medium of banks, 
which are really institutions for the exchange 
of credit, and by means of checks, drafts, 
notes, bills of exchange, letters of credit, post- 


office and express money orders, etc., the great 
bulk of the world's business is transacted. 

Statistics gathered from national banks in 
this country in 1881, showed that of the total 
deposits, ninety-five (95) per cent were in 
forms of credit to five (5) per cent in actual 
money, the percentage of credit paper rising 
in New York City to as high as 98.7. 

While these percentages may not show 
accurately, on the whole, the relative work 
done by money and by forms of credit, they 
do show the enormous extent to which credit 
takes the place of money, and the greatly 
increased demand for money that arises, 
when, from lack of confidence or other causes, 
the extent of the credit is lessened. Unless 
the volume of money immediately adapts 
itself to such demand, the value of money 
must inevitably increase, or the demand be 
lessened by a checking of all business transac- 
tions, and a partial paralysis of the industries 
of the country. Generally both of these 
results follow. 

MONEY. 39 

With these facts in mind, it is evidently 
futile to attempt to fix any definite amount 
of money, per capita, as the proper one. Not 
only does the amount necessary to meet the 
demand vary with different countries, per 
capita, even among the most civilized nations, 
but it varies with the seasons in each country, 
as crops have to be moved or not, and with 
the state of credit and enterprise from day to 
day. France, where the habits and customs 
of the people have prevented their making so 
large a use of credit and banking facilities 
as in England, requires a larger amount of 
money, per capita, than does England. 

Since the value of money depends on these 
two factors, supply and demand, if we are to 
have a money of invariable value, we must 
evidently control one or both of these. It 
would be hopeless to attempt to control all 
the various conditions and forces which, we 
have seen, affect the demand for money. For- 
tunately it is not necessary. TTe cannot con- 
trol the demand, but we have, or can have, 


complete control over the supply, and we can 
by this means maintain that constant relation 
between the supply of, and the demand for, 
money which is essential to its stability of 

Necessity for Invariable Money Value. 

Returning to the reasons for an invariable 
money value, they are best appreciated by 
considering the effects of one that is vari- 
able. While the statement of Mill, previously 
quoted, " that the money prices of all things 
should rise or fall, provided all rise or fall 
equally, is in itself and apart from existing 
contracts, of no consequence," is true, yet 
is it true only under the condition specified, 
that all shall rise or fall equally, and this con- 
dition in the case of a fluctuating money value 
never obtains. Aside from the exception 
which Mill makes of fixed money contracts, 
which can never adjust themselves at all to a 
changed money value, and the exception is 
of enormous volume arid importance, the 

MONET. 41 

prices of many commodities are not adjustable 
quickly or readily to a change in money value, 
especially when such change is an increase. 
There is a persistency or inertia about prices 
that in many instances resists a reduction. 
Wages can never be reduced without friction 
and often strikes. The fact that commodi- 
ties have fallen and that the lower wages will 
buy as much, or more, than the higher ones 
formerly did, is slow of appreciation ; hence 
the employer caught between the difficulty of 
reducing his employes' wages and the falling 
prices of his products, is injured by an in- 
creased money value. When the change, on 
the other hand, is a decrease of money value, 
the employer will not as a rule advance wages 
until compelled to do so, and the labourer suf- 
fers meanwhile from the rising prices of com- 

When prices fall, the producers of a com- 
modity are not apt to recognize that it is a 
general fall, a change in money value ; but 
accustomed to regard money as invariable in 


value, as it should be, and, failing to see any- 
thing in the conditions affecting their own 
particular product that should lower the price, 
they delay or refuse to sell, hoping for higher 
prices ; and all, or a large number, doing this, 
makes business dull. 

The great injury and evil of changing 
money value comes, however, through fixed 
money contracts. The enormous amount of 
bonded indebtedness, railroad, municipal, 
county, state, and national, makes the slightest 
change of money value of vast importance, 
and added to these is the aggregate volume 
of commercial and private debts. 

In short, a change of money value either 
way is a robbery, and none the less repre- 
hensible because it is legal and insidious. 
Indeed, it is perhaps more damaging in its 
secondary effects because of its insidiousness. 
An open danger may be guarded against, 
but the hidden danger, known to exist, but 
which cannot be located or prevented, only 
excites fear and distrust, and checks all move- 

MONEY. 43 

ment. Nor is the damage, in its secondary 
effects, confined to those involved in fixed 
money contracts. Piracy on the seas or 
robbery on a highway, when common, injure 
not alone those who are robbed. The fear 
and distrust engendered by such occurrences 
damage and delay all commerce ; and the cost 
of protection against these menaces, or of 
avoiding them by taking more circuitous 
routes, are a burden on the whole people. 
So the robbery by a fluctuating money value 
affects, indirectly, the whole community, 
while the indirect effects are far worse. In 
the case of a decreasing money value the 
robbery does not bring such disastrous con- 
sequences in its train as where the change 
is an increase, owing to the different condi- 
tions of the people robbed. 

A slight decrease of money value generally 
brings about a stimulation of trade and indus- 
try, the rising prices of commodities acting 
as a spur to greater production and new 


Mr. F. A. Walker, indeed, considers that 
for this reason, and in spite of the recognized 
injustice to some classes, that such a condi- 
tion when slight and brought about by natural 
causes, is a benefit on the whole. It can 
hardly be admitted that robbery of one large 
class in a community is defensible, even if it 
does result in a gain to another class greater 
than the loss to the first. It is indisputable, 
however, that the opposite case, where money 
is increasing in value, brings such disasters 
in its train that it would be better, if an in- 
variable value for money could not be attained, 
that the variation should be a decrease rather 
than an increase. In the latter case not only 
is the robbery equally great, but falling upon 
the most active, industrious, and enterprising 
class of the community, for it is this class 
as a rule that are borrowers, it not only 
imperils all they possess, but discourages, 
when long continued, all forms of industry 
and enterprise. In this way it throws thou- 
sands of men out of employment and brings 

MONEY. 45 

suffering and hardship to thousands more. 
No other one cause, perhaps, is more respon- 
sible for "panics" and "hard times," with 
their attendant evils tramps, pauperism, and 
crime. Its evils have been painted by many 
writers, and it is scarcely possible to exagger- 
ate them. Of all ills, war and pestilence 
alone seem to fill the cup of human suffering 
more nearly full than the depression and 
stagnation of industry which is brought 
about by constantly declining prices. 

In view of these facts, the necessity for 
a money that shall vary in its amount in 
accordance with the demands of business is 
evident. Not only must it respond to the 
long-continued, slow, and almost impercep- 
tible increase of demand due to growing trade 
and population, but it should also respond, 
quickly and surely, to those sudden demands, 
known as panics, when credit fails for any 
reason to do its usual work. This need is 
recognized by bankers in their demand for 
a flexible or elastic currency. 


Quotations are hardly necessary in support 
of the foregoing statements, but a few may be 
given. David Kicardo, in " Proposals for an 
Economic and Secure Currency/' observes 
that : - 

" All writers on the subject of money have 
agreed that uniformity in the value of the 
circulating medium is an object greatly to 
be desired." 

" A currency may be considered as perfect 
of which the standard is invariable, which 
always conforms to that standard, and in 
the use of which the utmost economy is 

"During the late discussions on the bul- 
lion question, it was most justly contended, 
that a currency to be perfect should be ab- 
solutely invariable in value." 

Prof. J. L. Laughlin, in "The History of 
Bi-metallism in the United States," remarks, 
p. 70:- 

"The highest justice is rendered by the 
state when it exacts from the debtor at the 

MONEY. 47 

end of a contract the same purchasing power 
which the creditor gave him at the begin- 
ning of the contract, no less, no more." 

Prof. R. T. Ely says, in his " Political Econ- 
omy," p. 191 : 

" It is not the ' much or little,' but it is the 
'more or less' that is of vital concern. Noth- 
ing produces more intense suffering than a 
decrease in the amount of money, and this is 
on account of the connection between past, 
present, and future in our economic life." 

This refers to a decrease relative to the 
demand, evidently, and he says, further : 

" If the amount of money is arbitrarily 
increased, so that the value of all debts may 
fall, it amounts to virtual robbery of the 
creditors. When arbitrarily the amount of 
money is decreased, it amounts to virtual 
robbery of the debtor class." 

" It may also be urged that with the prog- 
ress of improvements in industry, prices tend 
to fall, and that unless money increases in 
amount, those who take no active part in 


these improvements, nevertheless gain the 
benefit of them." 

Prof. Sidney Sherwood, in the " History 
and Theory of Money," says, p. 225 : - 

" The ideal that we want, so far as price 
adjustment is concerned, is to keep prices 
stable, so that a contract which is payable 
in one year from now can be paid with just 
the amount of commodities which will then 
represent the value stated in the contract 
of to-day. . . . 

" That is what we want, a stability of 
prices that persists from one year to another 
and from one generation to another. . . . 

" The object at which we aim is, as it 
seems to me, a currency which shall keep 
prices stable, a currency which shall expand, 
therefore, with the expansion of trade and 
commerce and development generally, a cur- 
rency which shall not be lagging behind the 
commerce and development of the country, 
and hindering that development, and a cur- 
rency which shall not, by being too rapidly 

MONEY. 49 

increased, lead to excessive speculation and 
to loss." 

We may summarize these conclusions in 
regard to money then as follows : 

Money should have an invariable value. 

The test of invariable money value is stabil- 
ity of prices in general. 

The value of money depends on the supply 
of it relative to the demand for it. 

The demand for money is variable and un- 
certain. It is affected by a great variety of 
circumstances, most of which are beyond 

The supply is in all cases regulated directly 
or indirectly by law, and can be controlled. 

In any monetary system it is necessary, 
therefore, that the supply should adjust itself 
quickly and correctly to any changes in de- 
mand, so that prices of all commodities shall, 
on the average, neither rise nor fall. In this 
way, and in no other, can an honest money 
be obtained. 

It is believed that these conclusions cannot 


be successfully controverted, and, using them 
as a basis, we now purpose to examine exist- 
ing monetary systems, and some proposed 
changes therein, to see in how far they con- 
form to this requirement, and what can be 
done for their improvement. 



VARIOUS substances have been used as 
money in the past. The " survival of the 
fittest" has, however, eliminated all but three 
(omitting fractional coins), and these are 
used, singly or in combination, at present 
in all the civilized nations of the world. 
These three are gold, silver, and paper. Gold 
and silver are generally used in the form of 
coins of definite weight and fineness. Paper 
money is a promissory note issued by the gov- 
ernment, or by authorized banks, promising to 
pay the bearer, on demand, the amount of 
coin specified on its face. 

Where this promise is kept, and coin is 
paid on demand, the paper is said to be con- 



vertible. Where, for any reason, the promise 
is not kept, and the amount of coin specified 
will not be given on demand, the paper is 
called inconvertible or irredeemable. 

As the coins which are used, and which are 
promised to be given in exchange for paper, 
may be either of gold or silver, or both, the 
system is said to be a gold standard or a silver 
standard, according to which one is used, or 
a bi-metallic standard if both are used under 
certain conditions. At present, as will be ex- 
plained in considering that system, there is 
no country that is really using a bi-metallic 

Where the paper money is inconvertible, 
the coin on which it is based does not cir- 
culate with it (for reasons which will appear 
later), arid such a system must be regarded 
as distinct from the others, no matter whether 
the basis be gold or silver. Three systems 
are therefore in use, the gold standard, the 
silver standard, and the inconvertible paper. 
The characteristics of each of these will be 


considered separately, but, taken as a whole, 
some facts should first be noted. 

Money in all countries is at present essen- 
tially a creature of the law. Not only does 
the government fix the weight and fineness 
of the coins, but it assumes the right to make 
the coins, and in some cases to limit the coin- 
age to a certain amount, or to stop coining 
altogether. It also, in most cases, issues 
the notes or paper money, and where it does 
not it controls the issue by laws regulating 
the banks that do issue them. It controls 
therefore in all cases the volume of money 
issued, both by specifying that it shall be 
made of certain metals which are scarce, and 
perhaps limiting the coinage of those, and by 
limiting the amount of paper money that is 
generally used, to a greater or less extent, in 
all systems. 

There is no international coin or money. 
Gold and silver when shipped from one 
country to another go as so much bullion ; 
their value is practically the same whether 


coined or uncoined. As Walter Bagehot 
observes, in his work " Lombard Street " : 

" Within a country the action of a govern- 
ment can settle the quantity, and therefore 
the value, of its currency ; but outside of its 
own country no government can do so. Bul- 
lion is the cash of international trade; paper 
currencies are of no use there, and coins pass 
only as they contain more or less bullion." 

Not only is the value of money as a whole, 
in any country, governed by the law of sup- 
ply and demand ; but each of these three 
kinds of money, and each of the substances 
of which they are made, is individually sub- 
ject to the same great law. 

The Gold Standard. 

The wide and long-continued use of gold 
as money has led to a popular impression, 
current even among well-inforrned men, that 
somehow, or in some mysterious way, gold 
has stability of value and is independent of 
those fluctuations which they recognize in the 


values of all other substances. That this is 
wholly erroneous is admitted by every writer 
on finance, and quotations are hardly neces- 
sary to support the statement that gold varies 
in value in the same way and is subject to 
the same law of supply and demand which 
regulates all other values. 

Along with this conception of stability in 
the value of gold, has grown up a very natural 
belief that where paper or silver circulated 
concurrently with gold, so long as they were 
mutually convertible, gold was the medium 
which regulated the value of all ; and that 
no matter what the quantities of the others 
might be, they did not affect the value of 
the gold or of the money as a whole. This 
is another popular misconception. 

In one sense the gold regulates the value 
of the money, but only to the extent that 
it limits, under the existing laws, the vol- 
ume of the whole by its scarcity. In another 
and wider sense the value of the gold is itself 
fixed and controlled by the value of the money 


in its entirety. The use of gold for money is 
so enormously greater than its uses for all 
other purposes, that its value as money fixes its 
value as a whole, since its money use is by far 
the largest factor affecting the demand for it. 

The demand for money is generally an 
indiscriminate demand, satisfied with paper 
money or silver as well as with gold where 
they circulate together. Hence, every issue 
of paper or increased coinage of silver in any 
such country, demand remaining the same, 
lowers the value of the money as a whole 
by increasing the supply, and since the value 
of gold is determined by its value as money, 
that is lowered with the rest. 

The value of gold varies, therefore, with 
that of the money as a whole of which it 
forms a part. 

In gold standard countries the coinage of 
gold is unlimited, and not to speak of the 
small mint charges generally free. Under 
these conditions the value of gold coin and 
gold bullion are the same, weight for weight. 


The silver coin, which is used to some ex- 
tent in gold standard countries, does not 
have either free or unlimited coinage at 
present. Its bullion value is less than its 
nominal and actual value, which is main- 
tained at a par with that of gold by the 
limitation of its issue, just as in the case 
of paper money, and by the fact that 
within the country of issue it does the 
same work as the gold, just as paper money 
does. Men will give just as much of any 
commodity for the silver coin or the paper 
as they will for the gold, because, their util- 
ity being the same, their exchange value must 
also be the same. 

With these facts explained, we can proceed 
to consider a very important law affecting the 
value of money and its distribution among 
different nations. 

Greshams Law. 

It was noticed and stated many years ago 
by Sir Thomas Gresham that full- weight coins 


would not continue to circulate with clipped, 
worn, or light-weight ones, and that the latter 
would drive the former out of the country. 
This statement has been extended and en- 
larged into what is known as Gresham's Law, 
which, as generally formulated, is that a 
poorer money will drive a better one out of 
circulation. In this form it is commonly 
accepted as true, but is often misunderstood 
and misapplied. 

It is, in fact, but a particular case of the 
more general law that any commodity will 
seek the market where it is worth the most, 
where it will exchange for the most of other 

The full-weight coins would exchange for 
no more in the country of issue than would 
the light-weight ones (within certain limits), 
but when it was desired to ship coins to other 
countries where they were valued by weight 
and not by tale, the full-weight ones were 
more valuable, and were, therefore, selected 
for such shipment, leaving the poorer ones 
to circulate at home. 


The larger application of Gresham's law 
to money as a whole is as follows : 

The resultants of all the various forces 
acting on money value through supply and 
demand evidently must be different in differ- 
ent countries, and thereby may cause the 
money of one country to rise in value while 
that of another falls. When this occurs be- 
tween two countries using the same metal as a 
part of their money, that is, either between 
two gold-standard or two silver-standard coun- 
tries, Gresham's law immediately operates to 
bring the two moneys again to a uniform value. 

Since the gold varies in value with the 
money as a whole, it will, under such circum- 
stances, be worth more in the country having 
the higher money value than in the other, 
and a flow of gold will set in from the coun- 
try where it is worth the least to the one 
where it has the greater value. This flow of 
gold decreases the amount of money in the 
country from which it goes, and increases the 
amount in the other, thus raising the value 


of money in the one, and lowering it in the 
other, until they are again on an equality 
within the limits of the cost of shipping gold 
from one to the other. 

The operation of this law, therefore, tends 
to make the value of money uniform, and 
average prices the same in all countries using 
the same standard. 

The gold which thus flows from one country 
to another does not go, of course, without a 
return of other commodities in exchange. The 
operation will be clearer if stated in its con- 
verse form. 

Since prices and money values are comple- 
mentary terms, one rising as the other falls, 
and vice versa, a rise in the value of money 
means lower prices, on the average, in that 
country. People will buy in the cheapest 
market, and if prices are lower in one country 
than in others, they will buy in that country 
in preference to others ; the balance of trade, 
as it is called, will be in their favour ; gold 
will be sent in payment for the commodities 


bought ; it will increase the money supply and 
raise prices there, and at the same time it 
will lower those of the country from which 
it goes until prices in the two are again on a 

It must not be supposed, however, as it 
evidently has been by some, that the opera- 
tion of this law in regulating prices and mak- 
ing them uniform as between different coun- 
tries at the same time, has any effect whatever 
on prices and money values as between two 
different periods. 

An increase or decrease of money value 
may go on simultaneously in all countries, 
and no flow of gold be caused ; the value of 
gold would continue to be the same in all 
countries, yet might be much higher or lower 
at the end than at the beginning of the 

To illustrate : the different countries may 
be compared to several tanks connected at 
the bottom by pipes, and containing water, 
the level of which, representing money value, 


is . continually fluctuating with the amounts 
of water added to or drawn from each of the 
tanks. If the water rises higher in one tank 
than in others, a flow will set in from the 
higher to the lower until all are again on a 
level ; but if the cause of the rise in the one 
tank continues, or if the cause extends to all 
the other tanks, the level in all the tanks may 
be greatly changed. 

So the continued preponderance of the 
forces in one direction, operating either to 
decrease or increase money value in one coun- 
try alone or in all together, will raise or 
lower that value in all the countries which 
are connected by the use of the common 
money metal, under a free coinage system. 
Thus the large discoveries of gold in one 
country will by this means gradually spread 
themselves over all gold-using countries. The 
country where the gold is discovered, is, of 
course, the richer by the amount discovered, 
and is none the poorer because of its flow to 
other countries, for such country receives the 


same value of other commodities in exchange 
for the gold. 

Through the medium of gold, therefore, 
general prices are maintained at the same 
level approximately in all gold-standard 

The great defect of the system is, that, be- 
cause of this mutual bond, no one country can 
adjust the volume of its money to the demand 
so as to maintain prices constant. Only by 
an agreement faithfully carried out by all, or 
by most of the leading countries, would this 
be possible. There is no such agreement now 
existing, nor any likelihood of the leading 
nations agreeing to do this, and the value 
of money in all gold-standard countries is 
the resultant of all the various forces that act 
upon its supply and demand, with no intelli- 
gent attempt to control either ; it is, in fact, 
the foot-ball of politics, selfish interests, and 

Neither the annual supply of gold nor the 
total amount used as money is the princi- 


pal factor in determining its value. It can- 
not be doubted that if all the nations now 
using the gold system were to abandon it, 
the value of the metal would be but a fraction 
of its present value, and on the other hand, 
if all the nations now using silver and paper, 
in whole or in part, as money, were to change 
to the gold standard, its value would be in- 
creased to many fold what it is now. The 
legislation, therefore, of all countries is the 
great factor determining coin value, not alone 
in the country legislating, but also in all 
other countries using gold and silver as a 
basis for their system. The factor next in 
importance is the extent to which credit is 
used in the place of money. The total pro- 
duction of gold is so small beyond the amount 
used in the arts and sciences that it would 
require a great change in its value, and years 
of time, for any increased production due to 
higher value to affect materially the quantity 
of gold coin in use. The production of gold 
depends more on chance, and less on its labour 


cost, than the production of almost any other 
commodity ; and though it would be, and is, 
stimulated somewhat by a higher value, there 
is no such certainty of its increased produc- 
tion being commensurate with the increased 
labour expended on it as there is in the case 
of most commodities. 

The Silver Standard. 

When the money system of a country is 
based on silver, and that metal has free and 
unlimited coinage in the mints, as gold has 
in countries using the gold standard, the same 
laws apply as in the case of gold. Exactly 
the same forces operate to affect the volume 
and value of the money except that the pro- 
duction of silver, its use by other nations, etc., 
are the factors, instead of gold supply and 
use. The coin and the bullion are equal in 
value, weight for weight, and Gresham's law 
applies the same as it does to gold to regulate 
the flow of silver from one silver-standard 
country to another 


In some silver-standard countries, however, 
the coinage is not free and unlimited, the 
government purchasing the silver at its 
market rate and coining it in such quan- 
tities as it sees fit. In this case the bullion 
value does not coincide with the coinage 
value : the latter depends entirely on the 
amount that is coined, relative to the demand 
for money, and is independent of the bullion 
value of the silver. The coin will be of 
higher value than the bullion, and will not be 
exported to other countries, as the bullion is 
equally valuable for that purpose and less 
costly. It is evident that the value of money 
is just as dependent on chance, that is, on 
a variety of causes too intricate and uncertain 
to be controlled, in the case of the silver 
standard with free coinage as in the case of 
gold ; but as some of the forces acting on 
silver are different from those acting on gold, 
one standard may be much more stable than 
the other. 



The theory of bi-rnetallism a money 
founded upon both gold and silver coin 
is based upon the fact, before stated, that 
the value of each of these metals is really 
determined by the value of the money, as 
a whole, of which they form a part their 
use for money purposes being so much greater 
than their other uses as to be the determining 
factor. If all nations, or a sufficient number 
of the leading ones, agree to coin both gold 
and silver in any amounts presented, and 
at the same ratio, the values of each relative 
to the other will be fixed at that ratio. No 
other market could be found for either metal 
at a higher ratio. The plan requires, of 
necessity, free coinage of both metals by 
several nations and in the same ratio. If 
the ratio differs in different countries, or if 
there are too few countries that are party to 
the agreement, the operation of Gresham's 
law will separate the two metals, and cause 


each to seek the country where it is worth the 
most as measured in the other. The supply 
of each metal is independent of the other, 
and their values, therefore, can only be kept 
the same by a control and adjustment of the 
demand thereto. 

Where silver and gold are both coined 
freely at a fixed ratio, if the supply of gold 
decreases, a portion of the demand for that 
metal - - it being more valuable than silver 
would be immediately transferred to silver, 
raising the latter and lowering the former 
value, and thus keeping their values at the 
same ratio. This, however, would not neces- 
sarily keep the value of the money constant 
as regards general commodities, and prices 
would still fluctuate. The variations would 
be spread over both metals, and, as shown 
by Jevons and others, would probably be 
more frequent, though less extensive. 

Theoretically, therefore, a bi-rnetallic stand- 
ard is little if at all better than a single 
standard. Whether it would be better or 


worse than gold or than silver would depend 
altogether on the conditions at any particular 
time, and it is therefore as much the victim 
of chance as either of the metals alone, so 
far as providing a money of stable value is 

As already stated, no nation is now using a 
bi-rnetallic standard. Countries like France 
and the United States, which nominally have 
the double standard, have long since restricted 
or stopped the coinage of silver and are really 
on a gold basis, their silver coins being at par 
with gold and worth much more than their 
bullion value. 

Prior to about the year 1873 these nations, 
as well as several others, coined silver as well 
as gold in any amount presented, and all 
nations using coin were practically on a bi- 
metallic basis, the ratio between gold and 
silver values having been maintained at 15 k 
to 1 (the coinage ratio in Europe) for many 
years within narrow limits. The United 
States had adopted the ratio of 15.988 to 1 


long before this time, and as a result the 
silver had all left this country in obedience 
to Gre sham's law, as it was worth more 
relative to gold in Europe. 

About the date above mentioned there 
was a great change in the coinage laws of 
several countries. Germany changed to a 
gold basis, selling a large stock of silver; 
France and other nations also practically 
changed to a gold basis by stopping the 
coinage of silver. As a result of this the 
relative values of silver and gold changed 
considerably. The demand for gold increased, 
and the demand for silver decreased. Silver 
fell gradually in value relative to gold, and 
this effect was further affected by large dis- 
coveries and greater production of silver. 

The United States also stopped the free 
coinage of silver at about the same time as 
the other countries, but this had no imme- 
diate effect on the relative values of the two 
metals, for this country was at that time, and 
for several years afterward, using an incon- 


vertible paper money no coin of either 
kind being in circulation. It had, however, 
a large subsequent effect ; for when the 
United States returned to a specie basis, if 
the coinage of silver had not been stopped, 
silver would have been coined in preference 
to gold, being the cheaper, and this country 
would have been on a silver rather than on a 
gold basis. 

Paper Money. 

Paper money differs radically from coin in 
one respect. Its circulation is confined to the 
country of issue. It may indeed be confined 
to a small part of such country as in the 
case of some of the old bank notes when 
the solvency of the issuing power is unknown 
or uncertain. This, however, may be regarded 
as an abnormal case. 

When issued by the Government or by 
authorized banks whose solvency is unques- 
tioned, it is accepted as freely as coin, and if 
not so accepted, cannot be considered good 


money. We shall consider only the case 
where it is generally accepted. 

Being usually a promise to pay coin, on de- 
mand, it can, in one sense, be considered hon- 
est only when the promise is kept. If the 
issues are excessive, that is, if by increasing 
the volume of the money as a whole its value 
is lowered so that the coin is worth more 
in some other country than as a part of that 
money system, the coin will leave the coun- 
try, as has been explained in regard to gold. 
The paper simply acts as so much gold or 
silver would act if added to the currency, 
forcing out a certain amount of coin. Where 
both metals are used with the paper, the one 
to go would depend on which was worth the 
most, relatively, in other countries. If the 
issues of paper are continued long enough, 
all the coin will leave the country, and, if still 
continued, the value of the money will sink 
below that of the coin, as the paper will not 
leave the country, but will accumulate, lower- 
ing the value with each new issue. The 


system will then have changed to an incon- 
vertible paper system, the value of the money 
being no longer dependent on the value of 
the coin on which it is based, and no longer 
affected by changes of money value in other 
countries, but determined wholly by the 
amount issued, relative to the demands of 
business in the country of issue. 

If the issues continue in excess of demand, 
the value will lower, even to the point of ut- 
ter worthlessness ; but if properly controlled 
and limited, the value of the money can be 
maintained at any point desired far more 
readily and easily than in the case of a con- 
vertible paper and coin system, since many 
variable forces are excluded when the con- 
vertibility is dropped. 

The amount of paper money that can be 
kept at par with coin under a convertible 
system bears no fixed relation to the amount 
of the coin. By a proper control of the vol- 
ume of paper issues their value can be kept 
equal to coin value, with almost no coin in 


circulation, or in reserve. An excessive issue 
of the paper will cause coin to be exported, 
but this export may be checked, and an im- 
port produced by withdrawing some of the 

Some control, therefore, may be exercised 
over the value of money under a convertible 
system, to make such value constant, but this is 
evidently limited. If the value of the money 
is falling, the decline can be checked, and its 
value made to rise, by withdrawing some of 
the paper issues ; but this will cause an impor- 
tation of coin, partly offsetting the reduction 
and checking such rise, and when all the 
paper has been withdrawn, the power of 
control by this method ceases. If the money 
value is rising, an increase of paper issues 
will stop such rise, but it will cause the expor- 
tation of coin ; and when all the coin has been 
exported, the money will cease to be converti- 
ble, and the system will have changed to an 
inconvertible one, the money still possessing 
the same qualifications as a measure of value 


that it possessed in the former case. The 
only difference is, that in the convertible 
system the money value is partly determined 
by the natural causes affecting the supply of 
coin, partly by the laws and conditions of busi- 
ness in foreign countries, and partly by the 
legislation at home, restricting the coinage or 
the issue of paper ; while in the inconvert- 
ible system it is determined wholly by the 
control of the issues relative to the demand 
for money. 

This difference may constitute either a 
merit or a defect, according as the control 
is intelligent and honest or otherwise. 

The disastrous consequences that have 
resulted at various times from the use of 
inconvertible paper money, have, in every 
case, been due to a lack of proper control 
and to excessive issues, caused generally by 
the want of a reliable gauge by which to 
determine the amount that should be issued, 
and by a misunderstanding of the principles 


While paper money, though a promise to pay 
coin, cannot, in one sense, be called honest, 
unless the promise is kept; in a larger sense 
the test of its honesty is its invariability 
of value. 

John Stuart Mill says of inconvertible paper 

"In the case supposed, the functions of 
money are performed by a thing which de- 
rives its power of performing them solely 
from convention ; but convention is quite 
sufficient to confer the power; since noth- 
ing more is needful to make a person accept 
anything as money, and even at any arbi- 
trary value, than the persuasion that it will 
be taken from them on the same terms by 
others. The only question is, what deter- 
mines the value of such a currency ; since 
it cannot be, as in the case of gold and sil- 
ver (or paper exchangeable for them at pleas- 
ure), the cost of production. We have seen, 
however, that even in the case of metallic 
currency, the immediate agency in de term in- 


ing its value is its quantity. If the quantity, 
instead of depending on the ordinary mer- 
cantile motives of profit and loss, could be 
arbitrarily fixed by authority, the value would 
depend on the fiat of that authority, not on 
the cost of production. 

" The quantity of a paper currency not 
convertible into the metals at the option of 
the holder can be arbitrarily fixed ; espe- 
cially if the issuer is the sovereign power of 
the State. The value, therefore, of such a 
currency is entirely arbitrary." 

Prof. F. A. Walker, in his " Money, Trade, 
and Industry," observes, p. 210: 

" After looking at this subject from every 
side, I am at a loss to conceive of a single 
argument which can be advanced to support 
the assertion of the economists, that paper 
money cannot perform this function of meas- 
uring values, so-called. On the contrary, it 
appears to me clear beyond a doubt, that 
just so long and just so far as paper money 
obtains and retains currency as the popular 


medium of exchange, so far and so long it 
does and must act as the value denominator 
or common denominator in exchange. And 
I see no reason to believe that in this single 
respect, hard money, so-called, possesses any 
advantage over issues of any other form or 
substance which secure the degree of general 
acceptance which is necessary to constitute 
them money." 

He says, further, on p. 214 : 

" Such mone} 7 , so long as its popular ac- 
ceptance remains undiminished, performs the 
office of a standard of deferred payments well 
or ill, according as its amount is regulated." 

Paper money is a real economy over gold 
and silver. Its use substitutes for those coins, 
that involve much labour in their production, 
a money of slight labour cost, which, under 
proper control, performs the functions of 
money even better than the coin. 

If, in any country possessed of the gold 
basis system, the gold product was wholly 
deposited in vaults, and paper certificates 


issued therefor to the amount of the deposits, 
such certificates, if in proper form and de- 
nominations, would answer all the require- 
ments of a circulating medium even better 
than the gold, and their value would be 
exactly the same as that of the gold they re- 
placed. By this method, in a measure, the 
English system, the country saves the wear 
and tear, besides considerable loss of gold, 
and is better served. The gold thus de- 
posited, except a comparatively small amount 
shipped abroad at times, would never be called 
for : its sole purpose would be to regulate by 
its scarcity the amount of the paper money 
issued ; beyond this purpose, it might as well 
be iron or lead as gold, or might as well have 
remained in the mines, from which it was dug 
at the expense of so much labour, as to be in 
the vaults. 

It would be difficult to conceive of a method 
of controlling money volume and value more 
expensive, more clumsy, and more inefficient 
than this ; for, it is to be noted, the control in 


no way adjusts the volume of money to the 
demand, so as to maintain a stable value, but 
merely adjusts the value to that ruling in other 
countries, a matter, as we shall see later, of 
no importance whatever. 



Gold- Standard Prices. 

HAVING considered theoretically the lim- 
itations and possible merits and defects of 
the money systems now in use, we shall next 
consider in how far the money under such 
systems conforms in practice to the chief re- 
quirement, stability of value. 

Economic writers do not claim that either 
gold or silver is, or has been, of invariable 
value; but many of them do claim that gold 
is more nearly invariable than any other com- 
modity, and that it is sufficiently so for 
money purposes, the changes in value being 
slight and covering long periods of time, so 
that from year to year they are almost im- 

G 81 


perceptible. Other writers claim that silver 
has been, of recent years at least, more sta- 
ble in value than gold, and is therefore a 
better measure of value. 

The merits of these claims can be tested, in 
the same way that the stability of value of 
any commodity can be tested, by a com- 
parison of the average purchasing power of 
each metal at different times. 

Prof. F. A. Walker, in the work already 
cited, observes, regarding money value under 
the gold standard as tested by average 
prices : 

" Not to speak of the enhancement, many 
fold, of the value of money through the Sil- 
ver Famine of the Middle Ages, or of the 
sudden and extensive decline which has been 
referred to as taking place between 1570 and 
1640, it is estimated by Professor Jevons that 
the value of gold fell 46 per cent, between 
1789 and 1809, that from 1809 to 1849 
it rose 145 per cent., while between 1849 
and 1874 it fell again at least 20 per cent." 


Coming down to more recent times, we 
have more full and accurate data, and there 
have been several careful compilations and 
averages of prices made in different coun- 
tries. The report of the Finance Committee 
of the United States Senate, 52d Congress, 
on "Wholesale Prices, Wages, and Trans- 
portation," known as the "Aldrich Report," 
is doubtless the most accurate and complete 
examination of prices in this country from 
1840 to 1892 that has ever been made. This 
report also gives for comparison the tables of 
Soetbeer and Sauerbeck (two of the most 
distinguished European statisticians), and the 
table of the Economist (London) as to for- 
eign prices, all reduced to the same basis, 
and to United States money units in gold. 

In order to facilitate comparison of these 
data, the tables have been platted as diagrams 
in Plate 1. All the tables were prepared by 
taking the prices of a selected list of com- 
modities for the year 1860 as 100, and cal- 
culating the variations in the price of each 


commodity from the price of that year as 
a percentage of rise or fall. The average of 
these percentages for each year represents, 
therefore, average prices for that year, as 
compared with 1860, and it is these averages 
which are platted in the diagrams. 

The list of commodities selected by the 
Senate Committee embraces 223 articles for 
the years subsequent to 1860. Prior to that 
time the number was less, varying from 85 
to 223, according as data were to be had. 

Dr. Soetbeer's table shows prices in the 
port of Hamburg, Germany, of 100 com- 
modities, mostly raw materials, joined with 
the export prices of 14 commodities (manu- 
factures) in England, from 1851 to 1891. 

Mr. Sauerbeck's table shows English prices 
of 56 commodities from 1846 to 1891. 

The Economist table also shows English 
prices of twenty-two commodities from 1860 
to 1892. 

The discrepancies between these different 
authorities, as shown by the variations in the 


lines of the four diagrams, call for a few words 
of explanation. 

It would naturally be expected that some 
differences in average prices would exist be- 
tween different countries, and part of the dis- 
crepancies may be accounted for in this way, 
since there are included in all the tables, among 
other commodities, such as wood and coal, 
of which the prices might vary considerably 
in different countries independently of one 

Several changes in the tariff in this country 
during the last fifty years would account for 
some discrepancies between United States 
prices and the others. Furthermore, the 
method by which these tables were in the main 
prepared, that of taking simple averages of 
the percentage of rise or fall in price, thus 
giving to each commodity the same weight 
in the result, regardless of its importance in 
commerce, is open to serious objection, and 
doubtless accounts for many of the discrep- 
ancies that exist. For example, the great 


rise in prices during the period of our civil 
war, as shown in the Economist and the 
United States tables, above those shown in 
the other two tables, is doubtless due to the 
fact that in the Economist table, four out of 
the twenty-two commodities in the list are 
either raw cotton or cotton manufactures, and 
the great rise in price of cotton during the 
war (a rise of from 300 to 400 per cent.) is 
given an undue importance in the result. The 
same cause may affect the United States table, 
to some extent, but a more potent factor in 
this table is the circumstance that this country, 
during the period, was using an inconvertible 
paper money in which all prices were ex- 
pressed, while gold was a commodity subject to 
speculation, and the price of which was much 
affected thereby ; and, in reducing currency 
prices to gold prices, for this table a somewhat 
abnormal result is produced. 

The Economist list, it must be said, contains 
too few commodities to be a reliable index of 


The United States list is sufficiently large, 
but the articles selected may be open to some 

The lists of Mr. Sauerbeck and Dr. Soetbeer 
are preferable, but all are open to the objec- 
tion, above noted, of not giving a weight to 
each commodity in proportion to its impor- 
tance, and none of them can therefore be 
regarded as anything but approximations to 
the truth. They embrace, however, the best 
information on the subject extant. 

The United States Committee did, in fact, 
endeavour to balance their own list in accord- 
ance with the relative importance of the arti- 
cles in another table, but the result is not 
wholly satisfactory, as the weighting of the 
averages was done by groups of articles in- 
stead of individually for each. It represents, 
however, probably the most accurate informa- 
tion as to the purchasing power of gold in 
this country from 1840 to 1892 that can be 
obtained, and as such has been platted in 
Plate 2, in a reverse form ; that is, assuming 


that the 223 articles of the list, weighted 
according to their importance, fairly repre- 
sent all commodities, and that therefore their 
value as a whole is constant (since the values 
of all commodities cannot rise or fall simulta- 
neously). The diagram shows the relative 
values of gold for the different years as a 
percentage on the value of 1860 taken at 
100. In other words, it shows the relative 
a.verage purchasing power of gold in this 
country in the different years. 

With these explanations of the diagrams, 
and the limitations of the tables from which 
they were platted, we can proceed to consider 
their points of resemblance and what they 

It is evident from all of them that a great 
decline in average prices has been going on, 
almost continuously, since 1873, in the various 
commercial countries. This is a fact conceded 
by all students of prices. 

What is equally apparent, however, but 
does not seem to be so generally appreciated, 


is the violent fluctuation in prices, or in 
the value of gold, from one year to another, 
amounting in many instances to from 5 to 10 
per cent, in a single year, and, during the war, 
to much more. Doubtless if the tables had 
shown the fluctuation of prices by months or 
days, instead of the averages for each year, a 
much greater variation in the value of gold 
would have been apparent at times, and within 
a shorter period than a year. Furthermore, 
the prices of staple commodities (and most of 
the commodities in all the tables are staples), 
while representing correctly the character of 
the changes in price of all commodities, 
would naturally not vary as much as the 
prices of many more speculative articles of 
commerce. It is probable, therefore, that gold 
has varied in value to a greater extent, and 
within shorter periods, than is shown by the 

It would be impossible to trace all the vari- 
ous causes that have produced these changes 
in money value, but a few of the more promi- 


nent ones may be indicated as showing their 
great variety and force. 

From 1840 to 1849 a great decline in prices 
is noticeable, similar to the decline that we 
know has been going on in the last twenty 
years. This is doubtless due in both cases 
mainly to increasing demand for money, 
caused by growing population and expanding 
commerce, and which the supply of gold and 
silver or substitutes therefor did not keep 
pace with. From 1850 to 1857 prices gen- 
erally rose, owing to the increased gold pro- 
duction in Australia and California, aided 
doubtless by the increased use of credit which 
rising prices always stimulates. The collapse 
of this credit in the panic of 1857 sent 
prices down again. The slow recovery from 
this condition was greatly enhanced by the 
breaking out of the Civil War, during which 
thousands of men were destroying instead 
of producing, thus raising the prices of nearly 
all commodities by decreasing the supply and 
increasing the demand relative to gold, while 


meantime the demand for gold was lessened 
by the use of paper money in this country. 
The disbanding of the armies at the close of 
the war, and the return of labour to produc- 
tive enterprises, lowered prices rapidly during 
1867, 1868, and 1869. From this depres- 
sion they recovered almost as rapidly in the 
era of development from 1869 to 1872, the 
large production of silver from the Nevada and 
other discoveries during that period assisting 
greatly in this recovery, and the usual exten- 
sion of credit at such times also contributing. 
This credit collapsed in the panic of 1873, 
and the demonetization of silver by several 
European nations about the same time pre- 
vented any increased production of silver from 
affecting the decline which then set in, and 
which has with one or two reactions been con- 
tinuous ever since. 

In the light of the facts, shown by these 
diagrams, any claim for even approximate 
stability of value for gold, or for the money 
as a whole on the gold basis, under the sys- 


terns now in use, is preposterous. Moreover, 
the change has been, of late years, of the 
worst kind, an increase of money value. 
If it were steady, its effects could be calcu- 
lated and discounted to some extent, but 
caused, as it is, by a variety of forces of vary- 
ing strengths, the increase is at some times 
wholly nullified, or even turned to a decrease, 
by extensions of credit, while again it is 
doubled in effect by the withdrawal of such 

The reason for this great decline in prices, 
or the increased value of gold, is not far to 
seek when we consider the relative strengths 
of the forces acting on gold value. Popula- 
tion, wealth, and diversity of occupations have 
all increased greatly over the whole civilized 
world, requiring a much greater amount of 
money to do the business of the world. 
There has been, to be sure, as an offset to 
this, a considerable increase of banking facili- 
ties and some greater use of credit paper in 
its various forms ; but all these were in large 


use prior to 1873, and their increase can 
hardly have been so great as to meet the 
demands of growing commerce. Furthermore, 
of the other forces tending to raise the value 
of gold, the annual product of that metal has 
not increased materially, though the demand 
for it for other than money purposes has 
increased largely, leaving a less increment to 
neutralize the waste and to increase the sup- 
ply of it. And lastly, many countries, as we 
have seen, about the year 1873 so changed 
their monetary laws as to use a much greater 
amount of gold, and a less amount of silver 
or paper. The United States alone, it is esti- 
mated, now uses about $600,000,000 of gold 
coin, while in 1873 it used practically none. 
The effects of this increase in the value of 
money have been as the effects of falling 
prices always are detrimental and disas- 
trous in all gold-standard countries, to an 
extent that cannot be measured. Offset at 
times by increased use of credit, enterprise 
and industry have been able to rise to a 


success that an honest money would make 
their normal condition, only to be dashed 
down again by the collapse of credit with 
nothing to take its place. 

Silver- Standard Prices. 

There is a quite prevalent belief that the 
value of silver has fallen greatly since 1872. 
This is a natural sequence to the belief that 
gold has been stable in value, as the gold 
price of silver has declined from $1.32 per 
ounce in 1872, to $0.82 per ounce in 1892 
(and since then the decline has been much 
more). This fall of about 38 per cent, must 
be deducted from the rise of from 24 to 41 
per cent, (according to the different authori- 
ties) in the value of gold, in order to show 
the true change in the value or purchasing 
power of silver. It is evident, therefore, that 
the value of silver has been much more nearly 
constant than that of gold. 

This is confirmed by the statement of 
Mr. David A. Wells, in his work on " Recent 


Economic Changes," p. 236. There, Mr. 
Wells remarks : 

" In exclusively silver-using countries, like 
India and Mexico, the decline in the value of 
silver has not appreciably affected its pur- 
chasing power in respect to all domestic 
products and services ; but the silver of such 
countries will not exchange for the same 
amount of gold as formerly, and it might be 
supposed that, owing to this change in the 
relative value of the two metals, the silver 
of India, Mexico, and other like countries 
would purchase correspondingly less of the 
commodities of foreign countries which are 
produced and sold on a gold basis. But the 
people of such countries have not thus far 
been sensible of any losses to themselves 
thereby accruing, for the reason that the gold 
prices of such foreign commodities as they 
are in the habit of buying have declined in a 
greater ratio since 1873 than has the silver 
which constitutes their standard of prices." 

He also says, in an article in The Forum 


for October, 1893 : " Testimony was given to 
the recent British Commission on Indian cur- 
rency, that within the last twenty years half 
of the silver prices of commodities in India 
have risen and the other half fallen." 

In Plate 2, the dotted line shows the varia- 
tions in the value of silver since 1872. This 
diagram is platted from calculations of the 
percentage of decline in the gold price of sil- 
ver, taking the price of 1872 as 100 (this 
was also practically its price from 1840 to 
1872, since the ratio of 15| of silver to 1 of 
gold was maintained within narrow limits 
during that time), and deducting these per- 
centages of decline from the percentage of 
increase in gold value. 

In considering the relative constancy in the 
value of gold and silver, the lines represent- 
ing each should be compared with the level 
price line of these metals in 1872. It will be 
noted that while silver has kept closer to this 
line than has gold, and on the average has 
varied but little from it, yet the fluctuations 


in the value of silver from year to year are 
quite as marked as in the case of gold. 

It will also be noticed that prior to 1872, 
under a bi-metallic standard, both metals, 
while maintaining a constant relation to each 
other, fluctuated in value quite as extensively 
as either alone has done since. 

The facts here shown as to the experience 
of this and other countries for the past fifty 
years, bear out the theoretical conclusions 
before stated, that the value of money, under 
any of the systems that have been used, is 
subject to violent fluctuations from year to 
year, due to a great variety of causes which 
are entirely beyond control, and that neither 
silver nor gold singly, nor both combined, 
has ever proved a reliable standard of value. 



BEFORE proceeding with the main line of 
this argument, we will digress to notice some 
of the arguments put forth in support of the 
stability of the value of gold by those who 
cannot but recognize the great fall in general 

While such writers do not deny the truth of 
the fundamental principles we have already 
considered, they either forget or ignore them. 

Notable among such writers is Mr. David 
A. Wells, and as his views may be taken as 
representative of many others, some state- 
ments from his article in Tlie Forum for 
October, 1893, previously mentioned, are here 
selected for criticism. 


In the beginning of that article, as well as 
in his work, " Recent Economic Changes," he 
clearly recognizes and states that there has 
been a great and universal decline in the 
prices of a variety of commodities within the 
last thirty years. He claims, however, that 
such a general fall of prices does not prove 
that the value of gold has increased, for the 
reason that, as he endeavours to show, such 
fall in prices was caused by lowered labour 
cost of production, due to improved machinery, 
better methods, greater division of labour, etc. 
All these facts may be freely admitted ; the 
error lies in supposing that it makes any 
difference what the cause is. Since value is 
a relation, it will be altered by a change in 
either of the terms between which that rela- 
tion exists, and it is immaterial whether a 
day's labour produces more commodities in 
general, and the same amount of gold, or a 
less amount of gold, and the same amount of 
commodities in general, as compared with 
some former period. The value of gold, other 


things being the same, is greater in both cases. 
The fact remains that if gold exchanges for 
more commodities in general than formerly, 
its value has risen. It is not clear what Mr. 
Wells' conception of value is, on which his 
arguments are based. He, however, seems to 
regard the labour that a commodity will pur- 
chase as the measure of its value, since he 
says, in the magazine article : " And then, in 
respect to the one thing that is everywhere 
purchased and sold for money to a greater 
extent than any other, namely labour, there 
can be no question that its price measured 
in gold has increased in a marked degree 
everywhere in the civilized world during the 
last quarter of a century." 

" Measured by the price of labour, there- 
fore, gold has unquestionably depreciated ; 
and can anybody suggest a better measure 
for testing the issue ? " 

The fallacy of using labour in any form as 
a test of value was pointed out in the chapter 
on value. That the labour a commodity will 


purchase is not in any way a standard of value, 
as between two different periods, has been 
shown by almost every economist from Ricardo 
down to the present time. 

The above quotations, in connection with 
the following from the same article, bring 
to light an important phase of the subject, 
which it may be well to make clear. Mr. 
Wells remarks : 

" A decline in prices, by reason of an im- 
pairment of the ability of the people of any 
country to purchase and consume, through 
poverty or pestilence or by reason of the mis- 
application of labour and capital, i.e. waste, 
... is certainly an evil. But a decline in 
prices caused by greater economy and effec- 
tiveness in manufacture and greater skill and 
economy in distribution, in place of being a 
calamity, is a blessing and a benefit to all 

With growing knowledge, and the advance- 
ment of the arts and sciences, there is a con- 
tinual improvement in methods of production 


and distribution, enabling the same amount 
of labour to produce and distribute to con- 
sumers a far greater amount of commodities 
in general than it formerly could. This has 
been conclusively shown in detail by a mass 
of statistics in Mr. Wells' book. The question 
arises, to whom should this increased product 
properly belong ? 

For the purpose of this inquiry the com- 
munity may be considered as divided into 
three separate classes, according to the source 
from which their principal income is derived ; 

(1) Labourers, including all whose income 
is principally derived from their work, of 
hand or brain, whether as wages, salaries, or 
products directly created. 

(2) Employers of labour, including all 
whose income is mainly derived from invest- 
ments of capital directly in productive enter- 
prises in the widest sense of the term, those 
who take the risks of business incident to the 
doing of the work of the community. 


(3) Money lenders, those whose income 
is derived from interest on loans ; who, not 
wishing to take the risks and cares of active 
business, prefer to loan their capital to others 
who will do so, accepting as their share of 
the profits a definite amount as interest. 

The incomes of many people are derived, 
of course, from all three of these sources, but 
they may be considered as belonging to the 
class determined by their greatest revenue. 

It is evident that labourers should have a 
share of the increased product that greater 
skill, improved methods, machinery, etc., 
create ; since labour is the direct cause of such 
increase, and not only the greater skill but 
the improved methods are due to labour. 

Equally evident is it that the capitalist 
who has taken the risks of business and 
whose wealth and enterprise have contributed 
to the results, should also share in the in- 
creased product. 

But all considerations of justice and equity 
forbid that those who, declining to take any 


risk themselves, prefer to loan their capital to 
others at a fixed compensation, should receive 
any share of the increased product which 
labourers and employers may succeed in creat- 
ing, beyond such fixed compensation. Justice 
is satisfied when to them is returned the value 
they loaned with the interest agreed upon for 
its use. 

It must not be forgotten that what is 
really loaned is capital, commodities in 
general, not money ; the money is only a 
medium for effecting the transfer, and a 
measure of the capital transferred. What 
should be returned, therefore, in repayment 
of a loan is the same amount of commodities 
in general that was borrowed, the same 

It is not meant that bond-holders and 
money-lenders should be entitled to no share 
in the generally bettered condition of man- 
kind due to lowered labour cost of producing 
commodities. They should, and in the long 
run would, receive their full share, through 


the higher rate of interest that increased 
general profits would bring if money value 
were constant, and by this means would ob- 
tain a just share, determined by open com- 
petition and not an unjust share, determined 
by the insidious device of a varying measure. 
It is meant, however, that the money-lender 
is entitled to no share in any increased pro- 
ductiveness of labour during the lifetime of 
his loan, beyond the interest stated. He gets 
his share of such increased productiveness 
through the higher interest he will subse- 
quently receive in re-loaning his capital. 

If prices of commodities have declined 
while wages have increased, as Mr. Wells 
claims, it shows that the labourer, on the 
whole, has received some share of the in- 
creased production, since his wages will buy 
more of commodities in general than for- 
merly. Whether the employer of labour has 
also received a share is more difficult to deter- 
mine ; but it is absolutely certain, if prices 
have fallen, that the money-lender, who is 


entitled to no share at all, aside from inter- 
est, has also received a share, and a very 
large one in many cases ; since the money 
returned to him in discharge of a debt will 
purchase a much larger amount of commod- 
ities in general than it would when it was 
loaned ; and this share has evidently been 
drawn from what should have gone to one 
or both of the other classes, and they are 
wronged to that extent. 

While the labourer may, or may not, have 
received the share to which he was entitled 
during the last twenty years, it seems highly 
probable, from Mr. Wells' statistics and argu- 
ments, that it is the employer of labour 
who as a rule is the borrower who has 
been injured most by the fall of prices. 

One of the great aims and endeavours of 
mankind is to produce the largest amount of 
commodities possible, with the least labour, - 
or to lower the labour cost of commodities. 
It is this lowered labour cost, which is " a 
blessing and benefit to all mankind," not 


lowered prices. The two are not the same, 
nor have they any real connection. Lowered 
labour cost depends solely on the improvement 
in skill, methods, machinery, etc., which will 
go on as well with prices constant on the 
average, as with falling prices, in fact, even 
better, and the product will then be dis- 
tributed honestly; while with falling prices 
the distribution is dishonest. 

It is important to keep clearly in mind the 
distinction between capital and money. That 
Mr. Wells has not always done so, the fol- 
lowing quotation will show : 

" Nobody, furthermore, has ever yet risen 
to explain the motive which has impelled the 
sellers of merchandise all over the world, 
during the last thirty years, to take lower 
prices for their goods in the face of an unex- 
ampled abundance of capital and low rate of 
interest, except upon the issue of the struggle 
between supply and demand." 

Capital is accumulated wealth devoted to 
the production of more wealth; money is 



merely a medium for the exchange and trans- 
fer of wealth : they are not synonymous 
terms. An abundance of capital may exist 
with a small amount of money (relative to 
the demand) and consequent low prices, or 
with a large amount of money and high 
prices : they have no connection. 

The rate of interest, also, has nothing to do 
with the question. Interest is determined by 
the amount of capital seeking investment in 
loans, relative to the demand, and in a time 
of relative contraction of the volume of 
money, and consequent falling prices, will, 
as a rule, be low, since there is less induce- 
ment for men to borrow capital to engage in 
business, and more men wishing to lend. The 
risks of business are much increased at such 
a time, and the profits much lessened, and as 
the rate of interest is determined by the 
profits of business in general, it will be low 
also. Mr. Wells, indeed, has recognized this 
fact elsewhere in his writings, but has evi- 
dently forgotten it in the above quotation. 


The accumulation of money in banks in 
times of depression indicates not too much 
money, but a general belief that its value is 
rising, or a fear that it will rise ; testifying, 
if to anything, to too little money, in fact. 
Men do not hold a thing that brings no 
income unless they expect to profit by its rise. 

As to the main point of the above quota- 
tion, certainly men accept lower prices for 
merchandise because of the issue between sup- 
ply and demand, but the supply of money is 
as much involved in the calculation as the 
supply of merchandise. Men accept lower 
prices that is less gold for commgdities in 
general, because gold has increased in value. 
Mr. Wells further says : 

" No one has ever named a single com- 
modity that has notably declined in price 
within the last thirty years, and satisfactorily 
proved, or even attempted to prove, that its 
decline was due to the appreciation of gold." 

No one, of course, could prove by the de- 
cline in price of a single commodity that 


money or gold had appreciated ; but when a 
writer admits, as Mr. Wells has done so 
clearly, that prices in general have fallen, 
no proof is needed ; the statements are but 
different ways of saying the same thing. 

That in order to establish the appreciation 
of money it is necessary to show that all com- 
modities have fallen in price, or that the price 
experiences of different commodities had har- 
monized in their decline, as Mr. Wells implies, 
is manifestly absurd. Even if average prices 
were constant, there would be continual fluc- 
tuations of individual prices, some rising, 
others falling, and these continue the same 
with an increasing money value, so that some 
prices might not alter at all, or might rise 
even with a rising money value, but others 
again would decline in a greater degree than 
if the money value were constant. If the 
average purchasing power of money is greater, 
then its value is greater, whatever be the 

So much space has been devoted to a criti- 


cism of this article because the opinions ex- 
pressed in it seem to be fundamental and 
dangerous errors. Moreover, they are given 
added weight by the reputation and promi- 
nence of the author, while they are more or 
less representative of the arguments of other 
defenders of the gold standard. 

Either Mr. Wells is mistaken in his con- 
ception of value, and of the standard by which 
it is measured, or Bicardo, John Stuart Mill, 
and all other authorities on Political Economy 
are mistaken in supposing that the value of 
a commodity is its general purchasing power. 



IT is claimed by many writers that inter- 
national trade is carried on upon a gold basis, 
and that it is necessary, therefore, if a country 
is to maintain and increase such trade, that it 
should have its money based upon gold, since 
its " balance of trade" must be paid in gold. 

The idea of foreign trade involved in such 
statements is a relic of the old "mercantile 
theory " that the great object of any country 
was to export as much as possible of its prod- 
ucts and receive in return the largest possible 
amount of gold and silver, to get gold, in 
fact, at any hazard. This theory was buried, 
a century ago, under the weight of Adam 

Smith's arguments, and every economist since 



then has helped to bury it deeper; but its 
ghost still stalks and appears now and again 
in the form of such statements as the above, 
and in the common expressions " the balance 
of trade is against the country," or " the 
balance of trade is in favour of the country," 
meaning that gold is being exported or im- 
ported, and implying that the one is an injury 
or the other a benefit to the country. 

From a mercantile point of view, there is 
some justification for these expressions, and 
for the satisfaction felt at a condition of 
things requiring the import of gold. As be- 
fore stated, the value of gold is inversely as 
general prices in gold-standard countries, and 
the import of gold means a lowering of its 
value and a general rise of prices, which, 
of course, is what merchants like to have hap- 
pen; and the export of gold means a fall in 
prices, which they dread. 

Under a monetary system which maintained 
prices constant, on the average, the export or 
import of gold would be of no more impor- 


tance than the export or import of corn or 

From an economic standpoint the term bal- 
ance of trade is a misnomer, and is mislead- 
ing. Equally misleading and erroneous is 
the idea that gold or silver is in any way 
necessary to foreign commerce, or that in 
consequence of a money being based on one 
of these metals such trade will be in any 
way enhanced. 

International trade is an exchange of com- 
modities ; not, to be sure, a direct barter, but 
an indirect one. One country exports those 
commodities which it can produce the cheap- 
est, in exchange for those of other countries 
that are either not produced at all in the first 
country, or can be produced only at a greater 
cost than by import. The immediate force 
impelling to the export and import of com- 
modities is, in all cases, a difference in their 
values in the two countries. This is no less 
true of gold than of other commodities, for 
gold will never move from one country to an- 


other except it be of lower value in the export- 
ing than in the importing country, no matter 
how much the one may be owing the other. 
The expressions " balance of trade in favour 
of," or " against a country/' means only that 
gold is at that time of higher value in one 
than in another country, by an amount above 
the cost of shipment, and is being exported or 
imported because there is a profit in so doing ; 
but this furnishes no criterion whatever of 
the prosperity of a country. It frequently 
happens that gold moves for a considerable 
time from one country to another because 
of large production of gold in the exporting 
country. That cannot be considered a bad 
condition of business or unfortunate for the 
exporting country, unless the commodities 
received in exchange are useless, or are wasted. 
At other times it frequently happens that a 
country is importing gold, giving in exchange 
not only other commodities, but promises to 
pay back the value received, in the shape of 
bonds and stocks running in debt, in fact. 


This may be a good or a bad thing for the 
country, as for an individual, according as the 
value received is profitably used or not. It 
certainly is no sure indication of real pros- 

The operations of foreign trade create a 
great number of claims and obligations on 
the part of citizens of one country against, 
as well as in favour of, the citizens of all 
others. These claims consist of drafts, bills 
of exchange, letters of credit, etc., and are 
expressed in every kind of money that exists, 
whether based on gold or silver, or simply 
inconvertible paper. Through the medium of 
foreign exchange banks these claims are offset 
against each other and cancelled. Between 
two countries having the same monetary 
standard there exists what is called the par 
of exchange ; that is, the ratio between the 
weights of gold or silver in their respective 
units. The actual rate of exchange that 
is, the price which will be paid in one money 
for claims expressed in another seldom con- 


forms to this nominal par. The bills of ex- 
change, etc., representing claims of the export- 
ers of one country against the importers of 
another may be regarded as a sort of commod- 
ity, and subject to the law of supply and 
demand. If one country, A., has more claims 
against another, B., than B. has against A.. 
then the demand will be stronger for those 
which are fewer, and the price will rise, and 
vice versa. 

The prices of exchange cannot vary from 
the par of exchange between gold-standard 
countries much more than the cost of ship- 
ment of gold ; for if they do, it will become 
profitable to export or import gold, and this 
will create new claims balancing the others. 
The variation of exchange rates within these 
limits is quite sufficient, however, to cause the 
actual exchange rate, and not the nominal 
one, to be reckoned on by those engaged in 
foreign trade. 

There exists, and always has existed, an 
actual exchange rate between the money units 


of all countries, or between the claims ex- 
pressed therein, no matter what the money 
was based on ; although there cannot be a par 
of exchange except between moneys based on 
the same metal. These actual rates are con- 
tinually varying, even between countries like 
England and Australia, which not only use the 
same standard, but a common unit, and there 
is, therefore, no difference in the practical 
working of exchange between countries hav- 
ing the same standard and those having 
different ones. 

The inference to be drawn from these facts 
and theories is, that it would make no differ- 
ence in the foreign trade of any country if it 
did not possess an ounce of gold or of silver, 
or whether its money was based on gold or 
was inconvertible paper ; if the country pro- 
duces commodities that other countries want, 
and wants some that other countries produce, 
the commerce will continue. 

If the money of either country is fluctuating 
in value, relative to the other, to any great 


extent, it may introduce some uncertainty 
that will hamper and inconvenience trade, 
though to a less extent than a variable money 
would in its own country, as there are means 
by which such fluctuations can be guarded 
against ; but unless the changes are sudden 
and violent, no inconvenience will be experi- 
enced, as the actual exchange rates are more 
or less always fluctuating. 

In support of these statements, and as 
showing that they are borne out by practical 
experience, the following quotations are given 
from Mr. Wells' " Recent Economic Changes," 
in reference to trade between a silver and a 
gold standard country when the relative val- 
ues of the two metals were changing quite 
rapidly. He says, p. 239 : 

"Mr. Lord, a director of the Manchester 
(England) Chamber of Commerce, testified be- 
fore the Commission on the Depression of 
Trade, in 1886, that 'So far as India was 
concerned, it is not necessary to run any risk 
at all from the uncertainties of exchange.' 


Mr. Blythell (representing the Bombay 
Chamber of Commerce) testified before the 
same commission, . . . ' There is no difficulty 
in negotiating any transaction for shipping 
goods to India and in securing exchange.' : 

Mr. Wells says: "Thus from returns offi- 
cially presented to the British Gold and Silver 
Commission, 1886, it was established that 
the trade of Great Britain with India since 
1874 had relatively grown faster than with 
any foreign country ' except the United States 
and perhaps Holland.' : He also says, of 
Mexican exchange, p. 241 : " The fluctuations 
in the price of silver since 1873 Mexican 
exchange having varied in New York in 
recent years from 114 to 140 would seem, 
necessarily, to have been a disturbing factor 
of no little importance in the trade between 
United States and Mexico ; but the official 
statistics of the trade between the two coun- 
tries since 1873 (notoriously undervalued) fail 
to show that any serious interruption has 
occurred.' 1 


During this period, Mexico had a silver 
standard, while the United States had incon- 
vertible paper for nearly six years of it, and 
a gold standard for the remaining period. 

Mr. Wells further states : 

" In forming any opinion in respect to this 
problem, it is important to steadily keep in 
mind the fact that international trade is trade 
in commodities and not in money ; and that 
the precious metals come in only for the set- 
tlement of balances. . . . The trade between 
England and India is an exchange of service 
for service. Its character would not be 
altered if India should adopt the gold stan- 
dard to-morrow, or if she should, like Russia, 
adopt an irredeemable paper currency, or, like 
China, buy and sell by weight instead of tale. 
. . . Unless all the postulates of political 
economy are false unless we are entirely 
mistaken in supposing that men in their 
individual capacity, and hence in their aggre- 
gate capacity as nations, are seeking the most 
satisfaction with the least labour, we must 


assume that India, England, and America pro- 
duce and sell their goods to one another for 
the most they can get in other goods, regard- 
less of the kind of money that their neigh- 
bours use or that they themselves use." 

From the time of the Civil War until 1879, 
this country, though nominally on a gold and 
silver basis, was actually using a depreciated 
paper money. No serious inconvenience was 
experienced in our foreign trade during the 
greater part of this time ; when the currency 
was most fluctuating, it doubtless did disturb 
all business, both foreign and domestic, but 
this was due to its great and sudden changes, 
and may be regarded as abnormal, and un- 
likely under a proper system again to occur. 

Walter Bagehot, in his work, " A Universal 
Money," observes : 

" If France and America had the same cur- 
rencies as England, it would still happen, 
as now, that bills on Paris or New York 
would be at a discount or a premium. The 
amount of money wishing to go eastward 



across the Atlantic, and the amount wishing 
to go westward, would then, as now, settle 
how much was to be paid in London for bills 
on New York, and how much was to be paid 
in New York for bills on London." 

It must be evident that if the people of one 
country have incurred debts to the people of 
another country expressed in foreign mone- 
tary units, nothing but such foreign money 
will satisfy the claim, and to procure it the 
debtors must ship some commodity in ex- 
change for it. What this commodity will be, 
will depend on which is the cheapest which 
one the debtor, everything considered, will 
have to give the least of in exchange for 
the necessary foreign money, it may be 
claims against foreign merchants, or bankers, 
in the shape of drafts or bills of exchange, or 
it may be gold, if that is cheaper, or it may 
be wheat, or cotton, or any other commodity, 
but it will always be that which the debtor 
can purchase cheapest. If it be gold, it will 
be because the debtor can purchase enough 


gold to exchange for the required amount of 
foreign money for less of his own money 
(including transportation and other charges) 
than he can purchase a sufficient amount of 
any other commodity, and not because the 
foreign money is based on gold. In short, the 
gold differs in no way from any other com- 
modity in such transactions ; it is exchanged 
for the foreign money, which alone can satisfy 
the debt, precisely as any other commodity. 

That both gold and silver may be a con- 
venience at times in international trade is not 
denied ; but they are not a necessity, and their 
convenience for this purpose is in no way 
enhanced by their coinage or by their use as 
a domestic money. 



TURNING from the consideration of money 
systems in general to the particular case pre- 
sented in our own country, we find a most 
curious system if, indeed, anything bearing 
so little evidence of rational adaptation to its 
purpose is entitled to that name. 

The unit of the system is the gold dollar, 
containing 25.8 grains of standard gold, nine- 
tenths fine, coined in five, ten, and twenty 
dollar pieces. There is also a silver dollar, 
containing 41 2 J grains of standard silver, 
nine-tenths fine, the ratio between the two 
being 15.988 grains of silver to one of gold. 

The gold is coined free, in any amount pre- 
sented. The silver coinage has been restricted 



for many years, and is now entirely stopped. 
The silver dollar, however, circulates at par 
with gold, though its bullion value is only 
about fifty cents measured in gold, which is 
the real basis of the system. 

In addition to the coin, and circulating on 
a par with it, are a number and variety of 
issues of paper money. 

(1) United States notes (or greenbacks), 
secured only by the credit of the government, 
except that there is held in the Treasury 
about 30 per cent, of the amount of these 
notes in gold as a redemption fund. 

(2) National bank-notes, issued nomi- 
nally by the various national banks of the 
country, but practically issued by the govern- 
ment ; since they are secured by a deposit of 
government bonds, are guaranteed by the 
government, and rest as completely on the 
credit of the government as the greenbacks 
do, though in a different way. 

(3) Silver certificates, secured by a de- 
posit of silver bullion. 


(4) Gold certificates, secured by a like 
deposit of gold. 

(5) Treasury notes, secured by deposits 
of silver. 

(6) Currency certificates. 

All of these kinds of paper money, as well 
as the silver coin, circulate on a par with 
gold ; their utilities being equal, and the 
demand for money being an indiscriminate 
one, their values must be equal. As a domes- 
tic money, gold cannot have a higher value 
than the issues of paper money; though it 
may, however, have a greater value as a com- 
modity for foreign shipment. It is not the 
fact that these other forms of money may be 
exchanged directly or indirectly for gold at 
the United States Treasury that makes their 
values equal to gold value, but the fact that 
their utilities are equal. They would remain 
of equal value with gold if the Treasury did 
not exchange gold for them, so long as any 
gold remained in circulation as money. A 
gold reserve, however, is necessary as a pre- 


caution in a gold-standard system, but only to 
the extent of the probable demand for gold 
for export. 

The system as a whole is a ridiculous one, 
and nearly all its features are wasteful and 

Gold coin, as a circulating medium, is not 
as good as paper ; it has a high subjective 
value, and such use of it is wasteful ; it should 
be kept as a reserve for export purposes. 
The gold certificates are better, but are also 
wasteful; since only a sufficient reserve is 
needed to meet possible demands for export, 
and this would be far less than dollar for 

The silver coin is open to the same objec- 
tion as the gold coin as a circulating medium, 
and the silver certificates to the same objec- 
tion as the gold certificates, and to the further 
objection that the silver deposited to secure 
them is of no use whatever, even as a reserve, 
for no one would demand silver bullion of the 
government in exchange for paper money at 


the present coinage value, when they could 
purchase nearly twice as much in the open 
market for the same money. Unless, then, 
our money should fall in value some 50 
per cent., not an ounce of silver will ever be 
called for at the Treasury in exchange for 
the paper issues based thereon; and the sil- 
ver deposits are merely a clumsy and costly 
method of limiting the volume of the paper 

The greenbacks, or United States notes, 
are economical, and if they were variable in 
volume and under proper control would be a 
good money. 

The national bank-notes are wrong in 
principle, in allowing private corporations 
to make a profit from the issuance of paper 
money. This objection is of no practical 
importance, at present, as the restrictions 
and high bond prices have taken away prac- 
tically all the profit to the banks on the 
issues, but in so doing have also taken away 
about the only merit such notes ever had, 


that of elasticity of volume to some extent. 
This was a most doubtful merit at best, as 
the issues were governed by considerations of 
private profit and not by any desire to make 
money of stable value. Whatever may have 
been the merits of the national banking 
system in the past, the war necessities of the 
government which gave birth to it, have 
long since passed away. It can be viewed 
now only in the light of its present useful- 
ness, and as an issuer of money it is of no 
use whatever. 

Paper money received by deposit of bonds 
instead of bullion is economical arid correct 
in principle, if controlled in the interests of 
the public, and not left at the mercy of men 
whose private interests may be opposed to 
the public welfare. No such control of the 
volume of the money is attempted in the case 
of the national bank-notes, and they are no 
more secure than are greenbacks, since the 
ultimate foundation of both is the national 
credit in one form or another. 


Of all our different kinds of money, the 
only ones susceptible of change in volume 
to meet the varying demands of commerce 
are, under existing laws, the gold coin and 
certificates. These can be changed only by 
the import or export of gold, or by the prod- 
uct of the mines over and above the amount 
needed for the arts and sciences, and which 
must be divided with other gold-standard 

The national bank-notes are theoretically 
elastic in volume, but actually are not so, to 
any appreciable extent. They require for 
their issue the purchase and deposit with 
the United States Treasurer of government 
bonds, now at a large premium, are 
subject to other charges and restrictions, and 
are not, as a rule, profitable enough to the 
banks to cause any increase of the issues 
above that required by law, except in urgent 
necessity, and that to a very limited extent. 

As a result of these conditions, the country 
witnessed, during the recent panic of 1893, 


a resort to every kind of device known to 
banking and permissible by law, to increase 
the volume of the currency and meet the 
enhanced demand for money caused by the 
utter failure of credit. Certified checks, cer- 
tificates of deposit, clearing-house certificates, 
and other devices were resorted to, and even 
then thousands of solvent institutions over 
the country were obliged to close their doors, 
and the industry of the whole country was 

The events are of too recent occurrence to 
need rehearsal here. It is a sad commentary 
on the wisdom of our legislators that, not- 
withstanding all the tinkering and patching 
that our financial system has undergone, and 
the voluminous debates in and out of Congress 
for years past, the volume of our money has 
been so far from keeping pace with the 
demands of commerce that prices have been 
falling for a quarter of a century, culminat- 
ing last year a repetition, unhappily, of 
previous experience in a collapse of the 


overstrained credit that was vainly trying 
to do the work of money, and bringing ruin 
and disaster to thousands. 

The condition of our monetary laws to-day 
is such that, except by the slow increment 
of gold production, which must be shared 
by all the world, we possess no means of 
meeting either the increasing demand for 
money that expanding population and com- 
merce bring, or the sudden demand that a 
failure of credit may bring at any time. This, 
obviously, is a blunder on the part of our 
law-makters that amounts to a crime. 

It is not surprising that under such condi- 
tions the industries of the country are crip- 
pled and that thousands of men should seek 
work in vain. Still less surprising is it that 
in the face of a continually increasing value 
of money, or decreasing prices of nearly every- 
thing else, prudent men choose, as far as possi- 
ble, to turn their capital into money, lock it 
up in safe deposit vaults, or let it lie idle in 
banks, rather than take the great risk that 


any active use of capital under such circum- 
stances carries with it. When money is 
increasing in purchasing power from five 
to seven, and even a higher per cent, per 
annum, as has been shown to be the case 
many times in the past, it means that the 
man who locks his money up in a vault 
gets that percentage of return for letting it 
lie idle ; or that the man who loans it, even 
at a low rate of interest, if a loan with 
safe security can be found at such a juncture, 
makes the five to seven per cent, resulting 
from the increased value, in addition .to what 
he gets as interest. 

Men cannot be blamed for declining to 
engage in productive enterprises under such 
conditions, nor for hoarding money instead 
of using it ; the blame lies on the system 
that not only permits but compels such 

There is evidently no inducement for men 
with money to invest it in any productive 
business with the certainty, under existing 


conditions, that the record of the past will 
be that also of the future, and that if a re- 
turn of confidence again expands credit and 
stimulates business to a new activity, it is 
sure to be followed, at no distant day, by 
another collapse. 

It must be conceded, with these considera- 
tions in mind, that the imperative need of 
this country is for a money that shall be at 
once more honest, more simple, and more 
elastic, and, at the same time, adaptable to 
the varying demands of commerce. 

Any change in a money system must, of 
necessity, cause some disturbance of business, 
and such change should be so devised as to 
cause the least possible disturbance, and do 
as little injury to vested interests and exist- 
ing obligations as possible. 

The system chosen should, moreover, be 
adapted not only to the needs of the present, 
but also to the possible requirements of the 
future, so that no change of system will after- 
wards be called for to meet further changes in 


demand, and cause again a disturbance of 
commerce. In short, it should be a system 
logical, economical, scientific, and permanent, 
not a makeshift, to be changed in the 
next Congress by the addition of another 
makeshift, in the manner in which our pres- 
ent crazy patchwork of money has been 
created and maintained. 



OF the many plans that have been proposed 
to correct the evils of our existing money 
system, it is not necessary to notice here more 
than two or three. Most of the others are 
more or less temporary expedients which, even 
if meritorious, fall so far short of an adequate 
or permanent solution of the problem as to 
merit little attention. 

The change which has been most urgently 
advocated is a return to the free coinage of 

It is not proposed to enter into any extended 
discussion of the merits or demerits of this 
proposition. Much has been written on the 
subject already, most of it, unfortunately, 



from a partisan standpoint, and ignoring all 
facts and principles, however well established, 
which did not agree with the views advocated. 
This, it may be said, is equally true of both 
sides to the controversy. It seems desirable, 
therefore, to point out how the principles 
we have already investigated apply to the 

Those who advocate free coinage of silver 
claim that the value of gold has increased 
since free silver coinage was stopped, while 
the value of silver has remained more nearly 
constant. This claim, as we have seen, is 
correct. They claim not to desire to sub- 
stitute silver for gold in the coinage, but to 
use both together at the ratio of 15.988 to 1, 
under a bi-metallic system, increasing the 
volume of money, and thereby raising prices 
to a higher level. 

Their opponents say that free silver coinage 
will drive gold out of the country and the 
value of our standard will at once fall to the 
present bullion value of silver (about 50 to 60 


cents, measured in gold), and that bi-metallism 
is only practicable by agreement between the 
leading nations. 

That free coinage of silver would result in 
driving gold from the country has been 
largely denied by the advocates of that 
measure. In this denial they make a great 
mistake, not only because the statement is 
strictly true, as theory and experience in 
the past have alike shown, but also because 
it would accomplish what they are aiming at, 
and is the only way in which it can be accom- 
plished through silver coinage. The increase 
in the volume of money here would raise prices, 
and the flow of gold to other countries would J 
raise their prices also, and thus a general rise 
of prices and a lowering of the value of gold, 
would result. 

The gold-standard advocates have also 
made an error in supposing that free silver 
coinage would result in the immediate fall of 
our standard to the present bullion value of 
the silver dollar. 


It would be rather difficult to trace the 
immediate effects of such a measure, as sev- 
eral conflicting forces would be brought into 
play, the relative strengths of which could not 
be foretold. It seems probable, however, that 
the first effect would be a large rise in the 
price of silver bullion, and a hoarding of gold, 
followed by its export in exchange for silver. 
For a time this would cause a fall in prices of 
other commodities, followed by a rise, as the 
new coinage began to fill the place of the gold 
hoarded and exported. However this might 
be, it can hardly be doubted that the final 
result would be a rise in prices of commod- 
ities including silver as measured in gold, 
or a fall in the value of gold all over the 
world as measured by commodities. Our 
money would probably remain at a slight 
depreciation below our gold standard, while 
both together would gradually lower. This 
condition would be made manifest by grad- 
ually increasing prices, and would continue 
either until all the available gold had been 


exported, or until the rising value of silver 
met the falling value of gold at the coinage 
ratio of 15.98 to 1. Whichever of these 
results took place would depend on the rela- 
tive amounts of gold available for export and 
of silver for import, and could hardly be fore- 
told. It seems more than likely, however, that 
the gold would all be exported. In this case, 
the country would have the silver standard, 
and the value of the dollar would be some- 
what lower than the value of a gold dollar 
then, and considerably lower than the value 
of a gold dollar now, but also considerably 
higher than the bullion value of the silver 
dollar is now. 

If the two dollars reached a parity at their 
coinage ratio before all the gold was ex- 
ported, the country would have not only a 
bi-metallic standard, but would practically 
force such a standard on the rest of the 
world, as long at least as the gold supply 
held out. If foreign nations returned also to 
the free coinage of silver, they would either 


have to change their ratio to agree with ours, 
or, if they kept their present ratio of 15s to 
1, the silver would gradually leave us in ex- 
change for their gold. 

The fear of a sudden fall in the value of 
the dollar, as a result of free silver coinage, 
is not justified. The value of the dollar 
would fall gradually as the volume of the 
money increased, as would be made mani- 
fest by gradually rising prices, except that 
this fall would be more or less counteracted 
at the start by a hoarding of gold, which 
would decrease the supply of money, and 
perhaps by a disturbance of credit, which 
would increase the demand for it. The first 
effects might be, therefore, an increase in- 
stead of a decrease of money value. 

It would probably not make so very much 
difference whether bi-metallism or the single 
silver standard was the final result. The 
value of the dollar would not be greatly 
different in the two cases. Before we reached 
a silver basis we would have exported some 


five or six hundred millions of gold, and 
bought its equivalent in silver, securities, and 
commodities, and the result would necessa- 
rily be a great advance in the value of sil- 
ver, and a corresponding fall in the value 
of gold, the reverse, in fact, of what 
happened when Germany and other nations 
changed from a silver to a gold basis. 
Whether, therefore, this country were able 
or not to restore the parity of the two 
metals at the present coinage ratio, the de- 
parture from such parity would not be 
nearly so great as it now is. Provided that 
the volume of the uncovered paper money 
remained the same as now, and that, when 
the change was finally accomplished, credit 
were used to the same extent as before, the 


value of the dollar would be somewhere 
between the present bullion values of the 
gold and silver dollars, and probably nearly 
as high if the result were the single silver 
standard as it would be if bi-metallism were 


The merits and demerits of the plan may 
be summed up as follows : 

The change would necessarily cause a great 
disturbance of business, which might result, at 
first, in a lowering of prices, but would event- 
ually result in a gradual but considerable in- 
crease of general prices, and a stimulation of 

Debtors would be benefited considerably, 
and creditors wronged considerably, especially 
in short-time obligations ; though the long- 
time ones those that had run for a number 
of years would not be affected so much. 

Once established, the money value would 
probably be less variable than gold has been, 
and rather more variable than silver has been 
in the past, but this could not be said with cer- 
tainty, as the money value would continue to 
be the result of a variety of forces, of which 
no one could predict or control the strength. 

The inconvenience of so bulky a metal in 
large amounts would almost necessitate its de- 
posit in vaults and the issue of paper money 


in its place for actual circulation. If this 
paper were issued only to the amount of the 
silver deposited, it would be a most uneco- 
nomical system, since the greater part of the 
silver might evidently just as well be in the 
ground from which it was dug, so far as any 
real use was concerned. If paper were 
issued in excess of the silver deposited, it 
would not make a market for very much more 
silver than we now use, and the value of sil- 
ver would be raised but little. 

The value of the money would therefore 
depend largely on the use that was made of 
paper in connection with it. Without some 
control of the volume of the money besides 
the control the supply of silver would give, its 
value would continue to fluctuate at all times, 
and greatly so in times of panic, as it always 
has done. With proper control the silver is 
wholly unnecessary, as its only use is to limit 
the volume of the money, and this can be 
done far more cheaply and efficiently in other 


Little need be said of the "Greenback" or 
fiat money proposals, so prominent some years 
ago, though they are seldom advocated now. 
Their only merit was a dim perception of the 
fact that gold and silver are not necessary to 
a money system. Their errors were that they 
failed to provide any standard by which money 
value could be tested, or any control had of 
its volume. They also failed to recognize the 
fact that money value is wholly dependent 
on money volume. 

Various plans have been proposed for 
changing our money system by increasing 
the issues of bank-notes. One of these plans 
is to repeal the present prohibitory tax on 
State bank-notes, which would, of course, 
result in the issue of such notes to any extent 
that was profitable. 

Several other plans propose to increase the 
issue of national bank-notes by removing 
some of the present restrictions, and allowing 
the banks to pledge other securities than 
United States bonds as a guarantee of their 


circulation, or by allowing their capital to 
serve, in part, as such guarantee. 

All of these plans are merely makeshifts, 
and merit little attention. Considered, how- 
ever, only as makeshifts, and with reference 
solely to the claims they advance, they are of 
no permanent benefit to the public. They only 
allow the banks to make a profit that should 
go to the community. It is claimed that the 
money volume will be made more elastic by 
these issues. This claim does not appear to 
be justified by an analysis of most of them, 
and, so far as it holds good in any of 
them, it is a most dangerous feature. If the 
issues are made profitable to the banks, 
and otherwise there would, of course, be no 
issues, as they are not compulsory, then 
the banks would undoubtedly increase them 
to the full limit allowed by law at any time. 
If they were limited so as to be profitable 
only when interest rates were high, then, 
when times were prosperous, prices rising, and 
profits large, the interest rate would be high, 


and the increased issues would enhance the 
"boom." When, however, the inevitable 
reaction came, and prices began to fall, and 
credit to be withdrawn, the time, most of 
all, when more money would be needed, the 
banks would not only be helpless to increase 
their issues, but would very likely reduce them, 
because of the increased risk at such times, 
and the fact that, in times of depression and 
declining prices, interest rates are apt to be 
low also. 

Elasticity of volume is a most necessary 
feature of a money system, when it is rigidly 
controlled, to make money value constant ; but 
it would be a most dangerous feature when 
the control was governed by the desire only 
to make the most profit. It would simply 
result in a greater fluctuation of money value 
than there is now. 

We have, so far, examined these various 
plans for amending our faulty money system 
rather in regard to the truth of their pretences 
than in regard to the requirements of an 


honest money. In this latter respect, all the 
plans ignore the necessity for an invariable 
standard of value, and provide no method for 
controlling the volume of money, and adjust- 
ing it to the demand, as might be done, to 
some extent, even with the gold standard. 
The general decline of prices could not be pre- 
vented, though some of the fluctuations might. 
The fact must be faced, that any attempt 
to increase the volume of money in this coun- 
try, and thereby raise our prices above those 
of other countries, or to maintain our prices 
in gold constant, while those of other countries 
are declining, can result only in the export of 
gold. This might not happen at once, for it 
takes time for Gresham's law to operate, but 
it would be inevitable. It would probably be 
delayed somewhat by foreign speculation in 
our securities, always a powerful factor in 
determining the value of our money, but 
it would come ; and the resulting depression 
would be all the greater for the delay and 
the height of the prosperity that preceded it. 


So long as our money is based on a metal 
that forms a part of the money of other coun- 
tries, under a free coinage system, so long 
will the value of our money fluctuate under 
the influence of foreign monetary legislation, 
wars, panics, and a hundred forces beyond 
our control. 

Only by divorcing our money from that of 
other countries can we control it, and only by 
controlling it can it be made honest money. 



IN the development of commerce from 
simple barter between savages up to its pres- 
ent complicated form and enormous volume, 
an evolution is apparent, similar in character 
to that which has taken place in the organic 
world. In both the change has been from 
the simple and homogeneous to the complex 
and heterogeneous. In both it has been a 
differentiation of the functions of the several 
parts, accompanied by an increased sensitive- 
ness of the whole. 

The primitive form of commerce, direct 
barter, may be compared to one of the low- 
est forms of animal life, in which all parts 
are alike mouth and stomach, and which if 



cut into pieces, will exist, severally, as a com- 
plete animal ; while modern commerce, with 
its various parts, each with a separate func- 
tion, and its highly sensitive organism, is more 
like a human being, in which each part is 
adapted to the work it has to perform and 
is dependent on all the others, so that the 
failure of any one to do its work cripples all 
the rest. 

Just as the cutting or maiming of a low 
form of animal life is of little damage to it, 
while a far less injury, relatively, would kill or 
seriously maim a man, so an injury to com- 
merce, that in a primitive form would amount 
to little, in our modern highly developed sys- 
tem would cripple it greatly. Money is one 
of the most important parts of our industrial 
system, the very life-blood, in fact, and 
if, for any reason, it fails to perform its func- 
tions fully and completely, the consequences 
are far more disastrous than they would have 
been under the more primitive systems of 
the past. 


Along with the evolution of commerce in 
general has gone an evolution of money and 
the mechanism of exchange. As the volume 
of traffic grew larger, the use of the bulkier 
commodities as money was gradually aban- 
doned for the more valuable metals. In time, 
even these became too bulky and inconvenient 
for use as a medium of exchange, and credit, 
in its various forms, now does the work of 
money, as to this function, to a far greater 
extent than money itself does, and even the 
money itself is mostly a paper money, a 
sort of certified credit. 

As previously stated, about 95 per cent of 
the bank deposits are in forms of credit, and 
of the actual money deposits only about one- 
tenth is gold, the balance being paper money 
and silver ; so that, on the strength of these 
estimates, only .6 per cent of the exchanges 
of commodities are effected through the direct 
use of gold. 

This evolution of money, however, has been 
almost wholly confined to the one function, a 


medium of exchange ; there has been no ad- 
vance for centuries in regard to the other 
function, a measure of value. Men have con- 
tinued to cling to the fiction that gold was a 
standard of value, and that, so long as their 
monetary system was based on that metal, 
their unit was of invariable value. We have 
seen how little ground there is for this claim ; 
that a gold basis for our money is not neces- 
sary to our foreign commerce ; and how 
small a part gold really plays in domestic 
commerce as a medium of exchange. Is it 
not about time, then, to abandon the fiction 
that gold is either a standard of value or a 
medium of exchange, in any proper sense 
of the terms, and to take a forward step in 
the evolution of money by adopting a more 
scientific standard of value, and making 
the money, as a measure of value, conform 
thereto ? 

Professor Jevons, in " Money and the Mech- 
anism of Exchange," in the chapter on " A 
Tabular Standard of Value," inquires whether 


it is not possible to have a standard based 
on a large number of commodities, a " mul- 
tiple legal tender," as he terms it, and con- 
cludes that the plan would resolve itself into 
those severally proposed by Joseph Lowe in 
1822, and, independently, by G. Poulett Scrope 
in 1833, and by G. R. Porter in 1838. These 
plans were practically alike. Recognizing the 
fluctuations of money value, and the injury 
done especially to long-time debts thereby, 
they proposed that tables be prepared showing 
the variations from year to year of the prices 
of the principal commodities, taking into 
account, also, the amounts sold. These tables 
were to be used for reference, to ascertain in 
what degree a money contract must be varied 
so as to make the purchasing power of the 
money returned equal to that loaned. The 
plans seem to have been only suggestions, and 
the details not worked out. Professor Jevons 
speaks favourably of them, as perfectly sound 
in principle, and the difficulties in the way as 
not considerable. He suggests a method by 


which the average prices of the commodities 
could be computed, and closes with the state- 
ment : " Such a standard would add a wholly 
new degree of stability to social relations, se- 
curing the fixed incomes of individuals and 
public institutions from the depreciation which 
they have often suffered. Speculation, too, 
based upon the frequent oscillations of prices 
which take place in the present state of com- 
merce, would be to a certain extent discouraged. 
The calculations of merchants would be less 
frequently frustrated by causes beyond their 
own control, and many bankruptcies would be 
prevented. Periodical collapses of credit would 
no doubt recur from time to time, but the 
intensity of the crisis would be mitigated, 
because, as prices fell, the liabilities of debtors 
would decrease approximately in the same 

Prof. F. A. Walker, referring to these 
schemes, and to similar ones proposed by Count 
Soden and by Professor Roscher in Germany, 
criticises them as too cumbersome for general 


use, but thinks they might be advantageously 
employed for long-time contracts. The criti- 
cism is evidently just ; not only are the plans 
too cumbersome, but they only partially accom- 
plish what is needed. They contain, however, 
the germ of a plan which it is believed would 
be both more effective and less open to the 
criticism mentioned. Long and short time 
contracts, and cash transactions, are too inti- 
mately connected to make it possible in prac- 
tice to use different and varying standards for 

Since the values of all commodities consti- 
tute the only true standard of value, as close 
an approximation to this standard as possible 
should be adopted as our standard of value. 

Since the value of the circulating medium 
the money depends on supply and demand, 
the supply should be so controlled that the 
value of the money would always correspond 
with that of the standard adopted, and since 
paper money is the cheapest, the most con- 
venient, and the only money entirely free 


from outside influences affecting its volume 
and value, our currency should be a paper 

The following is given as the outline of 
a plan embodying these features and re- 

The Standard of Value. 

Let a commission be appointed by Con- 
gress to select a sufficient number of com- 
modities, say, one hundred, to be used as a 
standard of value. 

This selection should comprise the com- 
modities most largely bought and sold and 
most independent of each other in their 
values ; preference should be given to those 
which are products of this country, but 
foreign products should also be included, 
and to those which are reliable in quality 
and of which the prices are regularly quoted 
such, for instance, as wheat, corn, oats, 
rye, barley, cotton, wool, tobacco, rice, gold, 
silver, lead, copper, tin, iron, steel, cotton 


and woollen cloths, leather, hides, lumber of 
various kinds, sugar, beef, pork, mutton, etc. 

The aim should be, while not including 
all commodities, which would of course be 
impossible, to include a sufficient number 
and of such varied kinds as to fairly repre- 
sent all. Less than a hundred might be 
sufficient, or it might be better to take more 
than that number. 

With the aid of statisticians, the average 
price of each of the commodities selected, 
in their principal markets for a few years 
past, should be ascertained and tabulated. 
The commodities, of course, should be of 
specified grade and quality, and in a spec- 
ified market, but not necessarily the same 
market for all. 

The length of time over which the 
average of prices should extend would be 
determined as closely as possible by the 
average length of time that existing in- 
debtedness had run. (The reason for this 
will be explained later.) In addition to 


the average prices of each commodity, the 
approximate amount or value annually con- 
sumed in this country, should be ascertained. 

From these data, a table should be pre- 
pared showing the amount one dollar would 
have purchased, on the average, of each of 
the commodities for the time determined, 
and from this a final table should be made 
taking such multiples of the amounts found 
in the previous table as should represent their 
proportionate consumption, in other words, 
their relative importance in trade. 

For example, suppose the time selected were 
five years, as representing twice the average 
time existing debts had run ; that during 
that time one dollar would have bought, on 
the average, 1.25 bushels of wheat, or 3 bush- 
els of corn, or 100 pounds of pig iron, or 10 
pounds of cotton, all of specified grade in spec- 
ified markets ; that, further, the importance 
of each of these commodities in the trade of 
this country was in the approximate pro- 
portions of 5, 3, 2, and 1, respectively. 


Then the final table would show: 

5x 1.25= 6.25 bushels of wheat = 95.00 

3x3 =9 bushels of corn = 3.00 

2 x 100 = 200 Ibs. of pig iron = 2.00 

1 X 10 =10 Ibs. of cotton = 1.00 

Total, $ 11.00 

Considering these four commodities only, 
the dollar, as the unit and standard of value 
of our system, would be defined by law as 
one-eleventh of the sum of the values of 6.25 
bushels of wheat, 9 bushels of corn, 200 pounds 
of pig iron, and 10 pounds of cotton. This 
illustrates the method of arriving at, and the 
definition of, the standard. Extended to all 
the commodities selected, the definition would 
be the same with the substitution of the proper 

This would evidently provide a standard 
that would closely represent the average pur- 
chasing power of one dollar for the time se- 
lected. As to the length of time over which 
this average should extend, if there were no 
such thing as existing debts, it would clearly 


be qf little importance what the value of the 
unit selected was, just as it would be of no 
importance now whether the foot or the pound 
had been originally fixed at greater or less 
than their present length and weight ; but 
because of the vast amount of existing in- 
debtedness, the value of the unit that is to 
be made permanent should be most carefully 
fixed at the value it had when such indebted- 
ness was created, so as to do as little violence 
as possible to outstanding obligations. The 
fact that in the past the debtors have been 
wronged to the advantage of creditors, by 
an increasing value of money, furnishes no 
excuse for a reversal of this injustice and 
a wronging of creditors by permanently fix- 
ing the value of the dollar at what it was 
twenty or thirty years ago. The debtors and 
creditors of to-day are not the same indi- 
viduals who stood in those relations at any 
time in the past, and two wrongs do not 
make a right. 

The object should be, therefore, to deter- 


mine as closely as possible how many years, 
on the average, existing debts have run, and 
take twice that period for the total length 
of time over which our prices should be deter- 
mined. The average of the prices would then 
correspond with what it was when average 
debts were incurred. 

This would doubtless work a slight injus- 
tice to those whose debts were of longer 
standing, though a less injustice than they 
are subject to now, and would be a slight 
injustice to the creditors of more recent 
date ; but as some time would be occupied 
in getting the system to work, so that 
the actual value of the money would corre- 
spond with the standard, the injustice would 
be more or less distributed, and would at 
most be slight. It would be substituting 
only a gradual rise in prices for the decline 
that has been going on, until prices were back 
to the level of perhaps two or three years 
before, and then fixing the level at that 


The Medium of Exchange. 

After the statistical work outlined above 
had been completed, Congress should repeal 
the present monetary laws, substituting for 
the definition of the " dollar " the new defini- 
tion agreed upon. It should then provide a 
currency or money to take the place of that 
now used. This currency should be a paper 
money similar to our " greenbacks. " It 
should be a legal tender for all debts public 
and private (except, of course, such as by their 
terms are payable in gold). In fact, the only 
difference between such notes and existing 
" promises to pay " of the government would 
be that the new notes, as is evident from the 
new definition of the dollar, would be promises 
to pay a definite value, and not a definite quan- 
tity of one commodity of uncertain value. 

The notes could be made redeemable in any 
commodity at its current market price, and 
should contain a pledge, on the faith of the 
government, that the amount of the currency 


in circulation would be at all times so con- 
trolled by the government that its actual pur- 
chasing power would conform to the standard 
on which it was based. 

To carry out this pledge, it would be nec- 
essary to have a small corps of statisticians 
who would receive and tabulate the current 
market prices for each day; and who would 
calculate therefrom the aggregate prices of 
the specified quantities of all the commod- 
ities constituting the standard, in similar 
form to the final table before mentioned, and 
of which an example has been given. If 
this aggregate for any day were more or less 
than the total of the standard table, it would 
show that prices in general had risen or fallen, 
and some money should be withdrawn from 
circulation, or more issued until the daily 
total corresponded with the standard total. 

Doubtless several plans might be proposed 
for putting such a money into circulation and 
controlling its volume. The following seems 
to commend itself by its simplicity and effec- 


tiveness of control, for at least a part, if not 
all, of the issues, viz. : The money to be loaned 
by the government on approved securities, such 
as their own bonds ; other bonds of states, 
counties, cities, railroads, etc. ; warehouse re- 
ceipts, gold and silver deposits, etc. First-class 
commercial paper, when guaranteed by solvent 
banks, might also be taken, especially in case 
of threatened panic. In short, such securities 
as would be considered the safest for banks 
and trust companies to loan upon, all under 
such proper restrictions and safeguards as 
would insure their safety as collateral. The 
rate of interest charged for such loans to be 
a variable one, decreasing as prices tended to 
fall, and increasing as they tended to rise, 
and without other restriction. This would 
absolutely control the volume of money, 
within narrow limits, since more would be 
borrowed at a lower, and less at a higher rate, 
of interest, yet the control would be elastic. 

While the loans should be for short time, 
they could be renewed at pleasure, and as 


often as desired, at the current rate of inter- 
est, the security remaining good. 

Such a plan would not interfere with 
general banking business to any considerable 
extent. In order to prevent monopoly, the 
loans should be open to all on equal terms, 
and the list of approved securities acceptable 
as collateral should be made as wide as pos- 
sible, consistent with safety. It would prob- 
ably be found by experience, however, that 
the principal borrowers direct from the gov- 
ernment would be the banks, who would 
re-loan the money (at a sufficiently higher 
rate to pay them for their trouble) to their 
customers, on local securities, commercial 
paper, etc., as they now do. 

In fact, the present system of national 
banks could be made, with few changes in 
the regulations governing them, a most val- 
uable adjunct to the plan as a distributing 
agency, and the plan is one that it would 
seem ought to meet with approval. They 
would, it is true, lose their present note cir- 


culation, but that, under existing laws and 
conditions, is of little or no profit to them. 
They would gain by its being unnecessary for 
them to keep so large a reserve of cash on 
hand as they are often obliged to do now ; 
for not only would the whole financial sys- 
tem be more stable than now, but they 
might safely be allowed to carry a part 
of the present 15 to 25 per cent, reserve, 
required by law, in such securities as they 
could at all times use as collateral with 
the government. They would gain even 
more by the security such a system presents 
against panics and senseless runs, which so 
often compel solvent banks to close their 
doors. In short, the government would act 
toward the banks, not as a competitor, but 
rather in the relation that the New York 
clearing-house has several times acted toward 
its members in times of panic, by the issue 
of clearing-house certificates, a quasi-money 
that helped them in time of need. The gov- 
ernment would not be subject to the limita- 


tions of the clearing-house, however. The 
money it loaned would be, unlike clearing- 
house certificates, a legal tender everywhere ; 
and the protection would extend to all the 
banks of the country. The government would 
act toward the banks in somewhat the same 
way as they act toward individuals, or as 
the Bank of England acts towards the other 
English banks, as a sort of reserve agent. In 
this case, however, the resources as to money 
would be unlimited. In the manner of regu- 
lating the volume of money, also, this plan 
would resemble that of the Bank of England, 
since that institution attempts in a feeble 
way, and prompted doubtless by self-interest, 
to regulate the volume of money, to some 
extent, by raising the discount rate when the 
volume is decreasing, as evidenced by exports 
of gold, and lowering the rate when gold is 
being imported. 

If it were impossible or inexpedient to loan 
in the above manner all the money the coun- 
try required, a sufficient amount could be so 


loaned as to give an absolute control of the 
volume, and to regulate its value at all times, 
and the balance could be issued in exchange 
for the present greenbacks, and for interest- 
bearing bonds of the government, thus con- 
verting a part of the interest-bearing debt 
into a permanent non-interest-bearing one. 

It is evident that the control of such a sys- 
tem should rest with the government, and 
not be left to any banking institution ; for 
a bank would be more influenced by con- 
siderations of profit than of proper control in 
the interests of all. The interest received by 
the government would be a minor considera- 
tion, the control of the volume being the 
main object, and the rate of interest a means 
merely to that end. The people, besides, 
would have at all times a greater confidence 
in notes issued directly by the government 
than they could have in notes issued by any 
bank, however strong. 

The department of the government to be 
charged with this issuing function should, of 


course, be entirely distinct and separate from 
the other departments. Its sole business 
should be the maintenance of an honest 
money. It should have no connection with 
the general expenditures of the government, 
further than to pay into the Treasury such 
profits, in the way of interest, as might be 
received. The government expenses should 
be met, as they now are, by the receipts from 
taxes and duties, or, if these were insufficient 
at any time, by borrowing money on its bonds. 
Under no circumstances should money from 
the issuing department ever be taken for the 
expenses of government, except in the same 
way that banks or individuals might receive 
it, and never then to an extent that would 
raise average prices. 

The legal tender provision of the notes 
would be necessary only as specifying the 
medium in which payment of debts should 
be made, to prevent misunderstanding, and 
for the protection of debtor and creditor alike. 
The new dollar being a quantity of value, and 


not of a specified commodity, a loan might 
be returned in any commodity of that value 
but for some such provision. 

The provision could in no case wrong a 
creditor, for what he would receive in pay- 
ment of the debt would be a positive guaran- 
tee to deliver him the value specified in any 
commodity he chose. Making the money 
redeemable in any of the commodities on 
which it is based would be only a form, and 
might be omitted ; it is suggested merely as 
obviating any objections to an irredeemable 
money. Of course the government would 
never be called upon to so redeem money, 
since the holder of it could exchange it for 
the commodity wanted in the open market to 
equal advantage. No reserve of commodities 
of any kind need be kept, therefore, for re- 
demption purposes. One great difference 
between this plan and existing systems will, 
of course, be seen at once : the present system 
promises a definite amount of gold, and must, 
therefore, keep a gold reserve ; but as no one 


really wants the gold, except to exchange for 
commodities, this plan proposes to do away 
with the necessity for a gold reserve by guar- 
anteeing that the money can be directly ex- 
changed for such commodities at the current 
market price, which is all that can be done 
with the gold, and that the average pur- 
chasing power of such money shall not vary 
as gold does. 

It must not be supposed that this plan con- 
templates any control of individual prices. 
Such will be free to fluctuate in accordance 
with the law of supply and demand, as they 
now and ever must do, regardless of the 
monetary system used. It would not be 
desirable, even if it were possible, to make 
individual prices constant ; but what is desir- 
able and possible, and what it is believed 
this system would accomplish, is to relieve 
the prices of all commodities from the fluctua- 
tions due to changes in value of the one com- 
modity by which all others are measured ; to 
make the money the one commodity which 


no one wants except for measuring the value 
of and exchanging for other commodities 
of constant value. The prices and values of 
gold and silver would then depend on their 
use for other than money purposes, or for 
money purposes in other countries, and if the 
value of either metal should fall, or fail to 
continue to rise, there would be no room for 
complaint that it was being discriminated 
against by the laws, since all commodities 
would be treated alike, and the demand for 
none increased over what it would otherwise 
be by its selection for monetary uses. 

It is evident that gold could still be used 
as a hoard of value, if desired, but such use 
would in no way interfere with the volume 
of money, as it now does. Neither would 
the hoarding of money itself affect prices and 
cause business stagnation as is the case now. 
The reasons for such hoarding would be mostly 
done away with, but if any should remain and 
the money be hoarded, the government would 
at once issue as much more as was needed to 


supply the deficiency so created, thus main- 
taining its value constant, and when the 
money hoarded was again put in circulation 
the government would withdraw a portion of 
it if it were excessive in amount. 

The exchange of the new money for the 
existing kinds would be a matter of practical 
financiering, presenting no unusual difficul- 
ties. This need not be enlarged upon. 

The gold certificates should be redeemed 
with the gold now held for that purpose. 
This gold, as well as that now in private 
hands, would thereafter take care of itself. 

The silver dollars, and all forms of paper 
money, should be redeemed in the new money, 
dollar for dollar ; the paper money should be 
cancelled, and the bullion both gold and 
silver sold gradually, with due regard to 
the effect of such sales on the prices of gold 
and silver, especially the latter. The pro- 
ceeds of such sales in the new money should 
also be retired from circulation. 

As a final result, the new money issued would 


all be in the form of loans to banks or individ- 
uals, except to the amount used in redeem- 
ing the uncovered paper now outstanding, less 
the reserve fund (and some loss that would 
result from the sale of silver below the price 
paid for it). This net balance of the new 
money issued, above what was issued as a 
loan, could be left as an uncovered paper issue, 
as it now is ; but for the sake of uniformity it 
would be better to make all the money a loan 
issue, in which case it would be necessary to 
issue bonds to take up such amount. It rep- 
resents now, of course, a remnant of our war 
debt, not refunded. No increase of interest 
charges would result from funding it in bonds, 
for the interest on the bonds would be offset 
by the interest on the equal amount of extra 
money that would be loaned in that case. It 
would make no difference as regards this gen- 
eral plan which of the two methods were 

This plan should not be confounded with 
any "fiat money" or unlimited " greenback " 


proposals. Its main point is directly the oppo- 
site of these, to secure a more complete control 
of money volume. It is not an attempt to 
make something out of nothing, or to create 
value by government fiat or authority where 
none existed before, or to coin the govern- 
ment's credit, although there is no valid 
objection to doing the latter when properly 

It is simply an exchange of credit, analo- 
gous to the operation of every bank. The 
government would loan a command over 
immediate goods (represented by its promise 
to deliver such goods on demand) in exchange 
for a promise to return such command over 
goods at a future time, and secured by a 
deposit of collateral ; and in payment for the 
difference between the value of present and 
future goods it would charge interest. This 
is precisely what the loan department of 
every bank does. Every man who accepted 
the money in payment for goods would 
deposit, for the time being, with the govern- 


ment the command over commodities in gen- 
eral which he owns ; the money being his 
certificate of deposit. This would constitute 
the fund from which the loans were made, 
just as the deposits in a bank constitute, in 
the main, its loan fund. When the money 
was used to purchase goods, it would be 
redeemed, so far as the purchaser was con- 
cerned, and the claim would be transferred to 
the seller of the goods, who in turn would 
become a depositor. 

Like every bank, the government would 
rely on the probability that all claims against 
it would not be presented for payment at 
once, but this probability would amount to a 
certainty in the case of the government, for 
there would be no probability of any of the 
claims being presented for direct redemption, 
as every one who had goods to sell would 
redeem the notes, so far as the holder was 

The honesty of the government as an agent 
for all the people is, of course, assumed in 


this plan ; but the credit of the government, 
in any other than a trust capacity, is neither 
assumed nor involved, since it would hold 
secured claims against others for every dollar 
issued (unless, of course, a portion of the 
money was left as an unsecured issue, which, 
as above stated, is no necessary part of the 

Money, in its ultimate analysis, is simply a 
claim which the holder has against society 
for goods in general. It is the faith that 
such claim will be recognized, and its value 
be stable, that gives currency to all money. 

This faith, in the case of coin, is based 
wholly on long custom and usage ; in the 
case of paper money, it rests on such custom 
joined to the pledge express or implied 
of the issuer of the paper. 

Selling is simply the exchange of a partic- 
ular thing for a command over things in 
general, and the reverse buying is the 
exchange of the general command over goods 
for some particular good. 


In all existing moneys, this claim is one 
only of usage, and its value is variable. In 
the plan proposed it becomes a definite 
promise of such goods in general, and to a 
definite value, the government being the 

The plan closely resembles the present 
national banking system, but broadened and 
improved, and with the objectionable features 
of that system removed. 



THE foregoing chapter is only an outline, 
but is believed to be a sufficiently definite one 
to show the feasibility of the plan. 

Merits of Plan. 

The merits of the plan are believed to 

(1) It furnishes a standard of value as 
nearly invariable as it is possible to obtain in 

(2) It gives a medium of exchange con- 
forming in value closely to the standard, one 
which is cheap, convenient, elastic, and to be 
had in any amount needed. 

(3) It would prevent panics. This may seem 



an extravagant assertion, but further consider- 
ation will show that it is well founded. A 
panic, whatever the cause, manifests itself as 
an unreasoning fear and distrust, which pre- 
vents credit from doing its usual work, and 
creates an excessive demand for money ; not 
only because the money is then needed by 
each individual who demands it, but because 
each is afraid if he does not get it then he 
will not be able to get it when he does need 
it. It means a hoarding of money, a great 
rise in its value, or, as generally expressed, a 
great fall in prices. All this is enhanced by 
the knowledge of the limited amount of 
money ; in fact, the fear is not so much of 
the ultimate solvency of banks and business 
institutions as of the fact that there may not 
be money enough to go round, and that those 
who are not first will be at a disadvantage. 
The plan proposed will, in the first place, pre- 
vent the growth of any such fear up to the 
panic point, by the knowledge that the gov- 
ernment stands ready to furnish any amount 


of money that may be needed to maintain 
prices ; and, in the second place, if by any 
chance such a fear should arise, its first mani- 
festation would be falling prices, which would 
at once bring an increase of money volume 
to meet the demand. It is well known that 
nothing will so effectively prevent a panic 
that is impending, or check one that has 
already begun, as the assurance that the insti- 
tutions involved stand ready to meet any de- 
mands that may be made upon them. A run 
could hardly originate on a bank, believed to 
be solvent, were it known that it could obtain 
at any moment all the money needed for the 
emergency. An element of certainty and 
stability would, by this protection, be given 
to all banks, and through them to all solvent 
and legitimate business institutions, which is 
now sadly lacking ; and business men would 
be relieved of much of the anxiety and worry 
that at times harass them under present 

(4) The proposed plan would tend to pre- 


vent those alternating periods of stimulation 
and depression of business known as " good 
times" and "bad times." It is not to be 
expected that any money system, however 
perfect, can wholly prevent excessive specula- 
tion, or development beyond the needs of the 
people, of particular industries; nor can it 
prevent such action from being followed by 
its natural consequences of disaster and loss. 
Wasted labour, like wasted force of any kind, 
can never be regained. Alternations of pros- 
perity and adversity, of confidence and dis- 
trust, will probably always continue, as they 
always have ; but much can be done to lessen 
the extent of the fluctuations. A money vol- 
ume adjusted to keep prices constant, as a 
whole, will evidently operate to prevent pros- 
perity from developing into a "boom" (sure 
to be followed by a more intense reaction), 
and will prevent the ensuing depression from 
reaching its extreme in panic. 

(5) The adoption of the scheme would do 
no violence to existing business. It would 


act rather as a mild stimulant by a slight 
raising of prices, and as a greater stimulant, 
through the confidence it would give. It 
would do no violence to the habits and cus- 
toms of the people. Accustomed, as they 
already are, to a half dozen different kinds 
of paper money, the issue of a new one by 
the same authority to take the place of the 
others would hardly be noticed, especially as 
the change could be and ought to be made 

If any change were necessary at a future 
time in the list of commodities constituting 
the standard, it could be made in the same 
manner that the standard was first fixed 
upon, with no disturbance of business, or 
perceptible change in money value. 

(6) The interest received for such money 
would probably more than pay the interest 
on the outstanding government bonds, and 
would be as fair and equitable a form of tax- 
ation for that, or any other purpose, as could 
be devised. 


(7) The coin and bullion we now use could 
be mostly shipped abroad in payment of our 
private debts, represented by American 
securities held there, and much interest 
money be saved to this country. 

(8) Last, but not least, the plan would be 
a measure wholly American. This country 
would stand alone, free from the disturbing 
effects of foreign monetary legislation. Not 
that our foreign commerce would be lessened, 
or would be free from the effects of commer- 
cial disturbances in other countries : commerce 
is such a world-wide and intricate network 
that it would be impossible, even if it were 
desirable, for one country not to be affected by 
changes in others ; but our money, the prices 
of commodities, as a whole, in that money, 
and the relations of debtor and creditor in 
this country w r ould be free from foreign influ- 

There are many minor merits in the plan, 
such as its tendency to equalize interest rates 
on the same, or on equally good, security all 


over the country ; the facility with which 
money would flow from the central source to 
the point where it was needed, and return 
when not needed, instead of having to filter 
through many banks with much loss of time 
and expense, as it now does ; the saving of 
what is now lost by abrasion of coin, etc. ; but 
these points need not be enlarged upon. 

Objections Answered. 

It is to be expected that many objectins 
would be raised to a plan, seemingly so radi- 
cal as a whole, although it is in reality com- 
posed of old and tried methods in most of its 
parts. It may be well, therefore, to anticipate 
some of the objections likely to be brought 
forward and to endeavour to answer them. 

Probably one of the first points to be raised 
against the plan, and one that, judging from 
recent discussion in magazine articles, would 
be strongly urged, is that it would have a bad 
effect on our foreign trade, and would divorce 
our prices from those of foreign countries. 


It has already been shown, in the chapter 
on foreign commerce, that such fears are 
wholly unfounded, and that it makes no 
difference what the money is based on ; if it 
is reasonably stable in value, foreign trade 
will not be disturbed. 

In any event, ceasing to use gold in our 
domestic commerce would only leave a larger 
amount available for foreign commerce if it 
were needed. Gold would continue to be a 
commodity produced by this country, and 
dealt in as all commodities are, and if it were 
a necessity or convenience for the transaction 
of foreign business, the bankers engaged in 
such business would keep a sufficient amount 
on hand for their requirements. It is not 
believed, however, that any such necessity 
would be felt, either by the bankers doing a 
foreign business, or by the government in 
providing for the payment of interest on its 
bonded debt. The latter would probably have 
to be calculated in gold, in accordance with 
the terms of the contract, but could be paid 


as well in the current money. All such bonds 
would in a few years be redeemed, and any 
inconvenience from this source would be short- 
lived and slight at most. 

As to divorcing our prices from those of 
other countries, the objection would have no 
weight. The values of any of our commodi- 
ties, compared with those in other countries, 
would in no way be affected. No legislation 
can affect or determine the amount of one 
commodity that will exchange for another, 
either at home or abroad, except as it may 
alter the relations of supply and demand 
affecting them, by tariffs or taxes, or by the 
selection of some special one for a particular 
use, as is now done in the case of gold for 
money uses. 

The values of gold, and of silver (to a less 
degree), would be the only things affected by 
the proposed change. All others would re- 
main the same : the money of our own or 
any other country would continue to be used 
as a measure of such values, and if our prices 


rose as measured in such money, so also would 
foreign prices by the same measure. The ex- 
change rates would vary as they now do, and 
between wider limits ; but the variations 
would, probably, not be rapid enough to affect 
foreign trade injuriously. Our money would 
be constant in value, and if the gold varied, 
the slight inconvenience it might be to the 
few directly engaged in foreign trade would 
be a small matter compared with doing vio- 
lence to our immense domestic commerce, by 
using such a variable standard. 

In regard to all obligations that are made 
payable specifically in gold, they should, of 
course, be paid on that basis ; but as the value 
of gold would be lessened by the shipment of 
it abroad, if we abandoned it as a money 
basis, the makers of such obligations would 
suffer less than they now do, or are likely 
to do in the future, because of the apprecia- 
tion of gold value. Gold could always be 
had to meet such obligations by paying its 
current price, and that price would represent 


less of commodities in general than it now 

It does not seem as if there could be any 
objection raised to the plan on the ground 
of unconstitutionally, since the greenbacks 
were, and are, held to be constitutional, and 
the new notes would be promises to pay gold 
and silver, as well as other commodities, if 
they were included in the list on which the 
money was based, not, to be sure, in a definite 
quantity, but in a definite value. 

A more valid objection might be urged, in 
the danger of entrusting to public officials so 
great a power as the control of money value 
would seem to be. 

In reply to this it may be said, that an 
inefficient, or to some extent even dishonest, 
control would be far preferable to no control 
at all, which is the present condition. The 
greater concentration of capital in our modern 
industrial system, and the increasing values 
handled, necessitates the entrusting of greater 
responsibilities to individuals, in both public 


and private business, and it has not been 
found that the men selected for the higher 
positions of trust in public life were often 
recreant to the trust reposed in them, or 
inadequate to its responsibilities, even where 
much was left to their discretion. In the 
plan proposed, however, almost nothing would 
be left to the discretion of the officials in 

The act of Congress putting the plan in 
force could provide for any contingencies 
likely to arise, and the duties of the officials 
would be mandatory, so far as the adjustment 
of the volume of money was concerned and 
the method of accomplishing it. Beyond 
that, errors of judgment, or even of inten- 
tion, could do little harm. Surely it is not ex- 
pecting too much of a public official, that he 
shall carry out his mandatory instructions, 
especially as any variation therefrom would be 
liable to immediate detection, and could be 
corrected before harm was done. 

It might be objected that the government 


should not go into the banking business, that 
it is not one of its legitimate functions. 

Avoiding the question of what the legiti- 
mate functions of government are, about 
which there is room for a large difference of 
opinion, it may be said that the plan does 
not contemplate the government entering the 
banking business as a competitor of existing 
banks, but rather as a regulator of them. 
This function it already exercises, and the 
popular demand is rather for an increase of 
such control. Furthermore, the Treasury, 
under the present system, is the largest 
holder of cash in the country, and its action 
is at any time of vital interest to the banks. 
It has more than once come to their aid in 
perilous times, to the extent of its ability, and 
had its ability been greater it could, and 
doubtless would, have done so more fre- 
quently. At times, moreover, the actual 
money held in the Treasury has been excessive, 
and by diminishing the volume of money in 
circulation this has badly affected business. 


The proposed plan would prevent this, and 
while not materially enlarging the functions 
now exercised by the government, would make 
its control of the banking system more direct 
and effective, to the benefit alike of the banks 
and the public. Our present banking system, 
admittedly, shows much weakness in times of 
panic. Each bank expands its credits to the 
full limit in times of prosperity, for its own 
profit, and in time of distress contracts them 
for its own safety, thus increasing the distress 
at such times. Under this plan its safety, if 
solvent, would be assured without the need of 
contracting its credits. 

As to controlling the volume of money, this 
either is, or is not, a- proper governmental 
function. If it is, then justice demands that 
the control be efficient, and in the interests 
of an honest money. If it is not, if the 
sole duty of government is to certify to the 
weight and fineness of pieces of metal by coin- 
ing them, then it has no right to refuse to 
coin any amount that may be presented of 


any metal the people or any section of them 
desire to use as money ; no right to issue, or 
authorize others to issue, on government 
credit, any paper money; and no right to 
forbid, or prevent in any way, banks, firms, 
or individuals from issuing, on their own 
credit, any money they chose. All of these 
acts are a control of money volume. The 
mere statement of such an alternative is a 
sufficient refutation of the claim. It would 
simply be financial anarchy. The government 
must control money volume, and the control 
should be real, effective and honest. 

Other objections might be raised to this 
plan, but none are foreseen of sufficient 
weight or gravity to offset in any consider- 
able degree the merits it seems to present. 



A UNIVERSAL money for the whole world 
has been the dream of some writers. This 
in many respects would be a convenience, as 
would a general uniformity of weights and 
measures ; but its benefits would be confined 
mainly to a saving of clerical work, and even 
this would not be as great an advantage as 
might be supposed, since differences in value 
of bills of exchange would continue to exist, 
even as they now exist between countries 
using the same money, or even between differ- 
ent cities of the same country. 

Unless the universal money were stable in 
value, it would be as dishonest as the existing 
systems, and to make it stable would involve 



its absolute control in volume by some cen- 
tral power to which the various nations would 
delegate their authority. Such a thing is 
most unlikely to happen. The obstacles of 
national prejudice and habit are too strong 
to be overcome, as will be evident from a 
perusal of Mr. Walter Bagehot's work, " Uni- 
versal Money," and the advantage to be 
gained by it is not worth the trouble. A 
universal money, then, must be considered as 
a Utopian dream ; and a plan that provides 
for our own country an honest money seems 
to be the highest success to which we can at 
present aspire in the settlement of this vital 
and all-important question. 

Whether future legislation be based on 
some such plan as the one here outlined, or 
whether another can be devised that will 
more closely meet the requirements, the fun- 
damental principles we have considered should 
be kept in mind in any change that is made. 

It should also be clearly understood that 
no monetary legislation, by this or any other 


country, can alter the relative values of all, 
or any, of the commodities, including gold and 
silver, which enter into human use and con- 
sumption, except in so far as such legislation 
shall affect their relative supply and demand. 
All that legislation can really beneficially do, 
is to provide a stable standard of value, as it 
now provides stable standards of length and 
weight, and to provide a medium of exchange 
that shall always conform in value to that 
standard, and shall be at once convenient and 

Opinions may honestly differ as to the best 
means of providing such a money, but, when 
fully understood, no difference of opinion can 
exist as to the benefit it would be to all 
classes of society, without exception. 

The labourer gains by employment being 
more certain and constant ; by the knowledge 
that open competition with capital will deter- 
mine the shares of the joint product which 
each shall receive, that he will not be the 
victim of an insidious change in money value 


or, while receiving nominally higher wages, 
be perhaps getting lower real wages. With 
an honest money, real and nominal wages 
coincide, and a rise or fall of wages is known 
at once as a benefit or an injury. The effect 
on wages would be toward an increase, by 
stimulating production and enhancing the 
demand for labour ; while the labourer's 
ability to purchase more would absorb such 
increased production and improve his con- 

The employer of labour would gain by the 
certainty that his success will depend more 
largely on his own ability and endeavour, 
and less on causes which are not only beyond 
his control, but on which he cannot even 
calculate with certainty; while the greatest 
risks to which he is now subject will be 

This applies not only to manufacturers, but 
to industrial enterprises of all kinds. 

Eailroad stockholders would be especially 
benefited. No other business, perhaps, carries 


so large a fixed indebtedness, in proportion to 
its value, as railroads, and the stockholders 
suffer more from an advance in the value of 
money than most other owners. The fact 
that they are to some extent monopolies and 
can keep their rates the same, or even in- 
crease them, with money value rising, does 
not alter the case; for the amount of traffic 
will, under such conditions, be lessened, and 
it is impossible for most railroads to reduce 
expenses in anything like a proportion to the 
reduction of income from diminished business, 
because of the large fixed charges. 

Merchants would be benefited by the 
greater general stability of prices, and would 
be relieved of many of the risks of business. 
They would, if solvent, have assurance that 
they could get money when needed, and the 
failures would be fewer. 

Money loaners would also be benefited. 
It might seem, at first sight, as if they would 
not, since they profit directly by an increase 
of money value ; but this is a narrow view. 


While the money leaner, as before shown, 
gets an undue and unjust share of the prod- 
ucts of labour and capital when prices are 
falling, yet the secondary effects of such a 
fall, the increased competition for loans, and 
diminished demand for capital for business 
enterprises, by lowering interest rates, tends 
to offset this gain ; and the doubt and uncer- 
tainty as to security keep capital idle as well 
as labour. The lender gets a larger share of 
the total product than he is entitled to, under 
such conditions ; but the total product is so 
much lessened as a whole, that his larger 
share is less in actual amount than a just 
share of the larger product would be, were 
money honest and prices constant. Moreover, 
one of the most important considerations to a 
lender is security, and this is much lessened 
with falling prices, and the leaner is fre- 
quently obliged to take the property which is 
security for his loan. He does not want the 
care and management of it, as it is generally 
far less valuable in his hands than in those of 


the original owner ; the latter thereby loses 
something which he could use, and the former 
gains something he has no use for, and no 
one is really benefited. * It cannot be con- 
sidered, therefore, that loaners, as a class, 
either profit by or desire such a condition of 
business depression and panic as is largely 
produced by dishonest money. 

A few individuals there may be the 
leeches or wreckers of society who rejoice 
at and profit by the general misfortune of 
all ; but they are not, it is believed, suffi- 
ciently numerous to make their desires im- 
portant or consideration for them a matter of 

In view of these considerations, the at- 
tempt so often made in discussing the 
question of money to set class against 
class, to lead labour to consider capital as 
its enemy, to embitter the relations between 
borrower and lender, and between the banks 
and the public, is greatly to be deplored. 
Competitors in a sense these different classes 


doubtless are, but so far as an honest money 
is concerned all are partners ; all would be 
gainers by it and none losers. Past experi- 
ence does not lead us to expect that men 
will generally become unselfish and altru- 
istic in their motives in the near future. 
Business will continue to be, as it always has 
been, a struggle for the greatest amount of 
commodities with the least labour ; and the 
plea for an honest money rests not upon 
altruism, but upon the enlightened selfishness 
which teaches that honesty is the best policy, 
in a money system as in other things, and 
that it is not profitable to kill the goose that 
lays the golden eggs. 


Aldrich Report, the, 83. 

Bagehot, Walter, quoted, 54, 122, 

Bank-notes, national, proposal 

for increasing issue of, 140. 
Bi-iuetallisin, 40, 07. 
Bohm-Bawerk, von, quoted, 4. 7. 

Capital and money, distinction 

between, 104. 
Coin. See Money. 
Coin and paper money, 1>L'. 
Cost of production, 10. 
Credit, money forms of, 92. 
Currency, an elastic. See Money. 

Decline in prices, 90, 101. 
Definition of money, 21. 
Definition of value, 1. 
Demand and supply. See Supply 

and Demand. 
Dollar, gold and silver, 125. 

Economist, London, on foreign 

prices, 83, 84, 86. 
Ely, Prof. R. T., quoted, 32, -i7. 
Employers of labour, 102, 199. 
Encyclopaedia Britannica on 

money, 35. 
Exchange, money as a medium 

of. See Money. 

Existing monetary systems, 51. 

Foreign commerce, 112-124; bal- 
ance of trade, from an eco- 
nomic standpoint, a misnomer, 
114; international trade, ib. 

France, monetary system of, 
changed to a gold basis, 70. 

Functions and requirements of 
money. 15. 

Germany, monetary system of, 
changed to a gold basis, 70. 

Gold. See Money and Monetary 

Gold production between the 
years 1850-57 in Australia and 
California, 90. 

Gold-standard arguments criti- 
cised, 98; Mr. D. A. Wells' 
fallacy of deeming labour a 
test of value, 100; threefold 
division of the community into 
labourers, employers of labour, 
and money loaners, 102; dis- 
tinction between capital and 
money. See Stability of Gold 
and Silver Values. 

Gold standard, the, 54. 

Greenbacks, 12(5, 129, 146. 

Gresham's law, 57, 59, 65, 07, 




Inconvertible paper, 22, 7<i. 

India, English commission on 
the depression of trade in, 
119; silver currency in, 9S. 

Invariable money value, neces- 
sity for, 28, 40. 

Jevons, Professor, quoted, 25, 27, 

Labour, productive and unpro- 
ductive, 14 ; three kinds of, as 
factors in making for the value 
of a commodity, 15 ; labour 
not a standard of value, 18. 

Laughlin, Prof. J. L., quoted, 40. 

Medium of exchange, the, 1G4. 

Mexican exchange, 120. 

Mill, John Stuart, quoted, 0, 14, 
18, 31, 36, 76. 

Money loaners, 103, 200. 

Money, definition of, 21; F. A. 
Walker's comprehensive defi- 
nition, ib. ; paper money and 
coin, 22 sqq. ; functions and 
requirements of, 25 ; money as 
' a medium of exchange,' ' a 
measure of value,' and 'a 
standard of deferred pay- 
ments,' ib. ; Professor AValk- 
er's substitution for the term 
'measure of value,' 'common 
denominator of value,' 26; 
money as ' a store of value,' 
ib.; qualities necassary to a 
money material, 27 ; invariable 
value, 28; fluctuations in 
money value, 30; J. S. Mill 
on the purchasing power of 
money, 32 ; the Encyclopedia 
Britannica quoted, 35 ; money 
demand and supply, 3(5 ; money 
actual- and money in forms of 
credit, 38 ; an invariable money 

value, 40; a change of money 
value, a robbery, 42; F. A. 
Walker, on decreasing money 
value, 44 ; a flexible or elastic 
currency, need of, 45; money 
in all countries a creature of 
the law, 53. 

Money in the United States, 125 ; 
greenbacks, national bank- 
notes, silver and gold certifi- 
cates, treasury notes, currency 
certificates, 126; gold coin, sil- 
ver coin, 128; national bank- 
notes wrong in principle, 129; 
no means to-day of meeting 
either the increasing demand 
for money expanding popula- 
tion and commerce bring, or 
the sudden demand that a fail- 
ure of credit may bring, 133; 
results, ib.; some proposed 
changes in our monetary sys- 
tem, 137 ; free coinage of silver, 
138 ; erroneous views confuted, 
139 ; ' greenback ' or fiat 
money proposals, 146 ; increase 
of the issue of national bank- 
notes a mere makeshift, 147; 
divorce of our money from that 
of other countries only mode 
of controlling it and making it 
honest, 150; a new monetary 
system, 151 ; standard of value, 
158 ; medium of exchange, Ki4 ; 
the national banks as a disl rib- 
uting agency, 107; complete 
control of the money volume, 
177; merits of plan considered, 
181; an invariable standard of 
value, ib.; a cheap, convenient, 
and elastic medium of ex- 
change, ib. ; prevention of 
panics, ib. ; repression of ex- 
cessive speculation and its re- 
action, 183, 181; plan wholly 



American, 180; objections an- 
swered, 187; conclusion, 19(5. 

Money system, our, some pro- 
posed changes in, 137. 

Money value, 29. 

Monetary systems, existing, 51 ; 
the gold standard, ~>4 ; Gres- 
ham's law, 57 : the silver stand- 
ard, Go; U-metallism,<;7; paper 
money, 71 ; J. S. Mill on in- 
convertible paper, 70. 

X<>w monetary system, a, 151- 

Panics and hard times, causes of, 
45; panic of 1857, collapse of 
credit in, 90; panic of 1873, 91. 

Paper money, 71, 78; Prof. F. A. 
Walker on, 77. See Money. 

Patten, Prof. Simon N., quoted, 

Prices, declining, evils of, 101 ; 
Professor Sherwood on sta- 
bility of, 48. 

Production, cost of, 10. 

Purchasing power, 5. 

Ricardo, David, quoted, 14, 17, 

Sauerbeck, Mr., quoted, 83, 84, 87. 
Sherwood, Sidney, quoted, 48. 
Silver, see Money ; the silver 

standard, see Monetary system. 
Silver, free coinage of, 138, 139. 
Silver famine of the Middle Ages, 


Silver production in Nevada, 91. 
Silver standard, the, 65. 
Silver-standard prices, 94. 
Smith, Adam, referred to, 14. 
Soetbeer, Dr. quoted, 83, 84, 87. 
Stability of gold and silver 

values, 81-97 ; gold standard 

prices, 81; European economists 

on prices, 83; decline in prices, 
90 ; silver-standard prices, 94. 

Standard of value, the, 12, 158. 

Supply and demand, 8; the im- 
mediate determiner of value 
the relation between supply 
and demand, ib. ; the demand 
for a commodity determined 
by its subjective or exchange 
value, 9, 10 ; close connection 
between value and the ratio 
between demand and supply, 

Tauschkraft, 5. 

United States, the, stops free 
coinage of silver, 70. 

United States Senate Finance 
Committee Report on 'Whole- 
sale Prices,Wages, and Trans- 
portations,' 83. 

Value and the standard of val- 
ue, 1-20; definition of value, 
1 ; the two classifications 
'Value in use,' and 'Value in 
exchange,' 3; Bohm-Bawerk 
on 'Value in the subjective 
sense,' 4; John Stuart Mill's 
aphorism ' every rise of 
value supposes a fall, and 
every fall a rise,' 7 ; Simon N. 
Patten on 'objective values,' 
ib. ; standard of exchange 
value, 12; exchange value, 
what determines its constancy 
or variability, 19; only one 
real standard of value, 20. 

Walker, Prof. F. A., quoted. 

21, 24, 25, 77, 78, 82, 156. 
Wells, David A., quoted, SQsqq. : 

94, 95, 98, 100, 101, 10.5-111, 

119, 120. 







Second Edition, i2mo, cloth, go cents. 

" This new edition of Mr. W. H. Mallock's famous work, now published in 
a much cheaper form, will be heartily welcomed. The author's theories are his 
own, and his statements of fact may be relied upon as accurate. Few economic 
writers have compressed so much into so little space, and there is the advantage 
of clearness in brevity of statement. He writes earnestly. ... It is no mean 
compliment to Mr. Mallock that his book is attacked by radicals and socialists 
on the one hand, and by conservatives on the other." Boston Daily Advertiser. 

" One cannot but recognize the earnestness of the writer, especially in the 
directions of making his book practical ; and we are more deeply impressed with 
his words, perhaps, because he is in no way an extremist. He writes from the 
standpoint of a radical, not as an agitator, and he states his arguments and con- 
victions forcibly and clearly." Detroit Free Press. 

" A sensible and practical work." Providence Journal. 

" The work is so carefully condensed as to be particularly practicable to the 
casual student of social questions, and also to those who have an awakening 
interest in the subject, without time or inclination for lengthy arguments." 
San Francisco Evening Post. 




American Commonwealth 

By the Right Hon. JAMES BRYCE, D.C.L., 


Third Edition, Revised Throughout. In Two Volumes. 
Large i2mo, $4.00, net. 

This new edition has been practically rewritten, and not only have all difficult 
and controverted points been reconsidered, but in every possible way the infor- 
mation given is brought up to date. All statistics have been carefully corrected 
by the latest official records, and constitutional changes in the States since 1889 
have been (so far as possible) noted. 

Four entirely new chapters are added, in which the author discusses The 
Tammany Ring in New York City, The Present and Future of the Negro, 
The South since the War, and The Home of the Nation. 

In the new material Mr. Bryce enters quite fully into recent politics, takes 
note of the issues of the last Presidential campaign, the effects of public opinion 
on such questions as the Force bill, the tariff, the silver quest/on, in deciding the 
elections, the relations of the political parties to each of these topics, discusses 
at some length the growth of new parties, and comments on the Hawaiian trou- 
bles, new aspects of the agitation for female suffrage, etc. 

The changes in the financial position of the Nation are commented upon, and 
the menacing attitude of Labor in recent years as shown in the Homestead Riots 
of 1892 and the Railroad Strikes in the present year. Attention is called to the 
dangers, on the one hand, of a constant influx every year of half a million of 
untrained Europeans, and on the other of the growing influence of wealth over 
the country, and such sinister results as "combines," huge corporations, etc., 
which are able to crush competition, and even influence legislation. 

On the other hand, something is said hopefully of the efforts of municipal 
reformers to purify politics, and of the revolt of the better portion of the com- 
munity in its effort to repress Rings, to minimize the action of the Machine, and 
overthrow the Rule of the Boss. 







1 2 mo, cloth. 

Dr. von Halle's work, on " Industrial Combinations and Coalitions in the 
United States," deals with an interesting and important subject. The scope of 
the work may be indicated by enumerating a few of the combines, in their 
broader sense, the author briefly touches upon, such as the Standard Oil 
Trust, the Cordage Trust, Railway Pooling, Steamship Line Combines, Pork- 
Packing, Brewing and Distilling Combines, School Book, Wall Paper, and 
Playing Card Trusts, the Steel Trade Combine, the Western Union Telegraph 
System, General Electric Companies Trust, Express Service Combines, besides 
Gas and Water, and Postal Service, Copyrights, Patents, etc. The author's 
point of view is not controversial, but elucidatory and impartial, seeking not to 
take sides for or against " Combines," still less to pass judgment upon them from 
amoral standpoint. He, of course, holds up to view their evils, economical 
and political, but, on the other hand, he points to their manifest industrial 
advantages. He shows how legislation has opposed them and sought to hold 
them in check, and he quotes both statutes and the decisions of jurists as re- 
pressive measures. Reference is also made to Trusts and their relation to the 
Stock market; while the subject is briefly considered as the outcome of a sys- 
tem of Protection. Here, as throughout, the author does not take sides, but con- 
tents himself, in the main, with a survey of facts. So neutral is the author, and 
averse from bias, that while he writes of monopolies as " despoilers^ oppressors, 
and impoverishes," he at the same time commends them, as among the blessings 
of civilization, in giving encouragement to the invention and improvement of 
machinery and to the vast array of modern labor-saving processes which the age 
even an age of combines and trusts has produced. 




An Outline of Political History, J492-J871, 

, cloth, $2.00. 

" Considered as a literary composition, the work can scarcely be too highly 
praised. It is a marvel of condensation and lucidity. In no other book is the 
same field covered so succinctly and so well. . . . Almost every page is enriched 
with striking comments that cause the reader to carefully reconsider, if not to 
change, his views of many historical persons and events." The New York Sun. 

" The opinions advanced by Professor Smith are ... in the main in harmony 
with those of our best authorities, and the treatise as a whole has a comprehen- 
siveness of view and a ready grasp of leading tendencies that should make it par- 
ticularly useful to the busy man who desires a rapid survey of American political 
history. By deliberately neglecting details Professor Smith has been able to 
fasten attention upon salient points and to concentrate interest around the 
careers of the great leaders in our political development. ... It is safe to assert 
that Americans as well as Englishmen will welcome Professor Smith's book and 
rejoice in its noteworthy fairness and lucidity." The Beacon. 

" The history of the United States is now told for us in the more attractive form 
and with all the advantages of the marvellous power of condensation and the 
brilliance and picturesqueness of style which characterize Mr. Goldwin Smith's 
writing. The pages are filled with sentences which stimulate thought, with 
happy phrases, with vivid pictures of men and of situations drawn with a few 
bold strokes. ... A volume of absorbing interest, worthy to be ranked with 
the best work of a great master of the English language." The Toronto Globe. 

" The author has, as those who know him do not need to be told, a style which 
is nothing less than fascinating, and a delightful literary flavor pervades all his 
work. The book is, of course, a marvel of condensation. Considered merely as 
a literary composition it would command high praise. Its lucidity, its graphic 
narration, and its constant avoidance of even an approach to dulness are quite 
as remarkable as its incisiveness of judgment and originality of view. ... Asa 
whole the book is remarkably free from errors." The Providence Sunday 






, cloth, $1.50. 

" The name of Mr. Benjamin Kidd, author of a very striking work on ' Social 
Evolution,' is, so far as we know, new to the literary world; but it is not often 
that a new and unknown writer makes his first appearance with a work so novel 
in conception, so fertile in suggestion, and on the whole so powerful in exposition 
as ' Social Evolution ' appears to us to be, ... a book which no serious thinker 
should neglect, and no reader can study without recognizing it as the work of a 
singularly penetrating and original mind." The Times (London). 

" It is a study of the whole development of humanity in a new light, and it is 
sustained and strong and fresh throughout. ... It is a profound work which 
invites the attention of our ablest minds, and which will reward those who give it 
their careful and best thought. It marks out new lines of study, and is written in 
that calm and resolute tone which secures the confidence of the reader. It is 
undoubtedly the ablest book on social development that has been published for a 
long time." Boston Herald. 

" Those who wish to follow the Bishop of Durham's advice to his clergy ' to 
think over the questions of socialism, to discuss them with one another reverently 
and patiently, but not to improvise hasty judgments ' will find a most admira- 
ble introduction in Mr Kidd's book on social evolution. It is this because it not 
merely contains a comprehensive view of the very wide field of human progress, 
but is packed with suggestive thoughts for interpreting it aright. . . . We hope 
that the same clear and well-balanced judgment that has given us this helpful 
essay will not stay here, hut give us further guidance as to the principles which 
ought to govern right thinking on this, the question of the day. We heartily 
commend this really valuable study to every student of the perplexing problems 
of socialism." The Churchman.